Target hospitals, not patients

The ministry of health has done a good job by getting the Armed Forces Medical College (AFMC) in Pune to do a first-of-its-kind standard treatment guide, which specifies the treatment for 35 common medical procedures, ranging from a Caesarean section to dealing with diabetes. AFMC, in turn, has collaborated with reputed hospitals like the All India Institute of Medical Sciences in Delhi and the Post Graduate Institute of Medical Sciences in Chandigarh to arrive at the treatment costs. The study brings out the huge profit margins that prevail in the medical care business when it says, for instance, that a routine Caesarean operation should cost Rs 5,525 in a 100-bed hospital "" many hospitals, in places like Delhi, charge Rs 40,000-50,000 for such a procedure. If the government were to mandate these rates, then, there would be a substantial fall in what insurance firms pay out today by way of medical insurance payments. The cautionary tale here is provided by the US, where medical costs have skyrocketed in an insurance-driven health care market, so the latest initiative is timely. Since insurance companies have already submitted data to the insurance regulator showing how they lose money on medical insurance, there is good commercial reason as well to attempt some correctives.

Any move to notify tariffs, however, must be done with extreme caution. For one, while it is true that insurance firms lose money on medical insurance, the biggest losses are in group medical insurance for companies "" and this is so because, till recently, insurance firms made good margins on the fixed-and-high rates for fire insurance (these have now been freed up and so will fall over a period of time), and sought to make this up by providing group medical cover to companies at a less than remunerative premium. So, a distinction needs to be drawn between individual and corporate medical insurance costs and profits/losses. But the real area of concern is that the move could backfire on those insured. If these rates get notified, and the insurance regulator uses them to calculate the maximum premium that insurance firms can charge, this will restrict what insurance firms pay for procedures to those covered by medical insurance. But if there is no pressure on hospitals to modulate tariffs at the same time, patients will continue to get treated at the same costs they will be left with having to pay the sum not covered by insurance. Insurance firms should therefore use these rates to negotiate with hospitals for discounts to their clients "" then, the insurance firm which has the best hospitals on its approved list (and that means treatment rates that are also pre-approved) will attract more customers.

In short, the government should not come down on the sector with a heavy hand, but seek a cooperative approach for achieving reform. For instance, there is little point mandating rates without looking at the prevalent rates in these hospitals "" in other words, reality should not be ignored merely because of the figures that AFMC has produced. Provision must also be made for regional variations in rates, as also variations according to the grade of hospital, so that a 'one size fits all' approach is avoided. Finally, if there is a certain percentage specified as minimum 'co-pay' (or what the patient bears as a fixed percentage of the total cost, with the insurance company paying the rest), it will help curb frivolous spending on luxury-hotel style care options.