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Price capping devices and drugs: Hospitals express concern

Private hospitals protest price capping proposals. Copyright: <a href=''>leaf / 123RF Stock Photo</a>The Delhi government has made price capping proposals in the health sector. The measure has won the support of 85 percent of Delhiites as per a recent poll. However, it has also provoked criticism from hospitals — in particular private institutions — due to the potential for massive reductions in their profit margins.

The move will cap the profits hospitals can make on a number of medicines and medical devices. It follows policies set forth last year capping the price of cardiac stents. This came as a response to investigations which found that it was common for prices to be increased many times along the supply chain. Some stents reached 1000 percent higher costs for the consumer compared to the original import cost.

Damning reports have recently been issued showing similar situations with numerous medicines and medical devices in a number of hospitals. Consumers were found to be paying up to seventeen times the price that hospitals had originally paid for the products.

Price capping versus “illegal profiteering”

The Modi government has been taking a hard line against this kind of costing structure, which they have deemed “illegal profiteering”. The proposed price capping bill aims to tackle this kind of price scaling in both hospitals and nursing homes. It has specified that an institution may charge a maximum of the procurement cost of the product plus fifty percent. This increase is limited to 35 percent in the case of implants.

However, the strategy has the same flaws as were found in the capping of cardiac stents. Loopholes are abundant, within which the hospitals may attempt to make up their lost profits.

Following the stent price cap last year hospitals were faced with a potential 85 percent reduction in profits for the angioplasty surgery. In response to this many hospitals took advantage of loopholes in the wording of the price cap. The eight percent profit margin imposed referred specifically to the sale of the stent itself. It did not include the cost of the surgery or other materials used during the procedure. As such, the hospitals could charge in excess for the surgery or disposable implements used in the process to recover costs.

The proposed bill in Delhi may address this issue to a degree. By including a wider variety of products used in a hospital setting the potential for markups on other items is reduced. However, items not included in the list could again be increased in price to make up for lost profits. This could theoretically continue until every medical product is price-capped.

“Far more extensive”

This bill, however, is far more extensive than that of the price capping of cardiac stents. The bill calls for a separate sub-committee to cap the prices that can be charged by private hospitals for investigations like diagnostic tests.

Other measures within the bill include a potential fifty percent reduction in fees to the family if if a patient dies within six hours of admission. In addition, hospitals will no longer be legally allowed to refuse treatment to any patient, with no exceptions. Some hospital officials have claimed these two terms to be contradictory. They claim this would oblige hospitals to operate under at a loss. Others claim the bill will never stand up in court.

Delhi Health Minister Satyendar Jain said in a briefing on May 28 that the proposal could be drafted into law within 30 days after seeking public comments. If enforced, any violations of the new law could see the hospital or nursing home’s licence revoked.

“What right do they have to regulate us?”

Responses to the new law have ranged from disapproval to outright anger. Authorities from Max Healthcare said the advisory was “quite harsh” towards private healthcare providers. They claim some of the recommendations may adversely impact patient care and quality.

An individual requesting anonymity in comments to the Economic Times was even more critical of the move “The government is not making a single contribution in investing in healthcare system. What right do they have to regulate us?”

Rana Mehta, leader of healthcare at consultants PwC India, said the advisory would benefit patients, but negatively affect businesses. This, in turn, could lead to a fall in the quality of patient care in the long run.

Around seventy percent of healthcare provided in India is from the private sector, this could have lasting effects if profit margins fall. There is the potential that many private hospital chains would resort to cost cutting measures to deal with the financial losses. This in turn would affect the level of care provided to patients, potentially putting lives at risk through sub-par products or lack of provision of services in some areas.

The price capping of medical products has drawn criticisms both domestically and abroad. Specifically, the cap on stents led to Abbott Healthcare withdrawing several of their stents from the market citing a lack of profits.

This has led the US Trade Representative (USTR) to reportedly consider revoking the special tariff with India if it continues to implement price caps on medical devices manufactured by American companies.

The continuation of the capping policies in Delhi could continue to shake India’s relationship with the medical and pharmaceutical sectors. With as many as 800 private hospitals and nursing homes in the National Capital Territory of Delhi, this policy could heavily hit large private chains such as Max Healthcare and Fortis Healthcare, both of which operate a large number of chains in the area.

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