The true cost of ‘low-cost’

India needs to lower overall healthcare costs without compromising on the quality of care delivered

September 03, 2017 12:02 pm | Updated 12:02 pm IST

Scene inside a ward of the encephalitis centre, at the state-run BRD Medical College Hospital in Gorakhpur where the death toll is over 100, including infants, though the hospital records claim apart from 6 deaths most most were terminally ill-born.

Scene inside a ward of the encephalitis centre, at the state-run BRD Medical College Hospital in Gorakhpur where the death toll is over 100, including infants, though the hospital records claim apart from 6 deaths most most were terminally ill-born.

The Indian healthcare system can reasonably be characterised as low-cost by global standards, still is unaffordable to a majority of the Indian population. For-profit private set-ups provide a majority of healthcare services in urban India, in the backdrop of a virtually non-existent non-profit or government establishment. With an estimated per capita income of less than $3 a day, private healthcare service is beyond the reach for almost 80% of the population. Even the top quintile earner averages around $5 a day and will have to shelve years of saving for a procedure such as knee replacement.  

Cities that can boast of excellent government healthcare set-ups (New Delhi, Chandigarh, and Lucknow, to name a few) are facing a different set of problems — high volumes, lack of adequate manpower and poor infrastructure. Years have passed since I left the All India Institute of Medical Sciences, and I still get phone calls from friends and family asking if I can ‘get them in’ for a doctor’s visit or a procedure (at the AIIMS, in the national capital) since the waiting time is in weeks to months, with added bureaucratic processes. Working past capacity, it’s only natural that ‘excellence’ becomes a far-fetched goal of these over-burdened ‘centres of excellence’. Virtues like physician-patient rapport and professionalism are left to be discussed only in lecture halls and textbooks. Private set-ups try to fill in for the deficiencies of the government healthcare system, but at a financial cost. This brings me back to where I started. Private hospitals, just like any other private business enterprise, are here to make a profit and one cannot criticise them for doing so. 

Medical tourism

Patients from Dubai, Afghanistan, Qatar, Kuwait, even the United States can often be seen in corporate hospitals of Indian cities like New Delhi. Cheap and efficient healthcare delivery offered at such set-ups has turned India into a major medical tourism destination. Private hospitals in India have managed to keep the cost low enough, providing the required economic incentive. To give an example: for a patient in the United States who requires a hip replacement and doesn’t have a high premium/low co-pay health insurance, getting the surgery done in India is cheaper (compared to out-of-pocket expenses outside of insurance coverage) even after factoring in the cost of round-trip airline tickets and accommodation for the patient and family. The same cost that may be economical for international patients is often too high for an average Indian family. The race to make healthcare affordable for an average Indian household continues.  

One must understand the basic difference between out-of-pocket expenditure for healthcare in India as compared to other countries (let’s take the U.S. as an example). Out-of-pocket cost in the U.S. is simply what the patient pays (co-payment or deductible) while third party payment systems such as insurance, government schemes, employee/school benefit and so on (a typical two- payee system) pay the rest of the amount. Making healthcare affordable in a two-payee system may include reducing total out-of-pocket expense for an individual by allocating a higher proportion of the total bill to the third party. In the Indian fee-for-service model where the entire transaction occurs between the patient and the service provider, in order to decrease healthcare cost one has to either reduce the actual cost of the procedure or reduce the profit margin. In a country where an informed patient shops around various hospitals before deciding where to get treatment, reducing cost also offers a competitive advantage to private hospitals. A logical Indian must ask how India is able to provide such low-cost healthcare, which many developed countries are struggling with, and still continue to drop the cost further. 

Re-using medical equipment (after the sterilisation process) that are labelled single-use-only is a common practice in India (and many other developing countries). The rationale is simple: it brings the cost down. Take coronary angioplasty and stenting, for example. While a simple procedure can be done using a fixed set of equipment, often multiple catheters, balloons, wires and so on are required, particularly if anatomical challenges are encountered. If a new piece of equipment is used every time (and the patient is charged for the same), those procedures will have an astronomically high cost, something that won’t be financially viable under the Indian self-pay healthcare model. 

While bringing about undesirable heterogeneity in procedure costs across patients, the practice also has huge corruption potential. Instead, equipment are re-used and the patient is billed for only one set of equipment regardless of how many sets are used. One can see it as a form of shared-risk model as sometimes it is difficult to predict which cases will require additional equipment. Realising that re-using single-use equipment may impose additional risks to patients, the Health Ministry issued a memorandum in early 2017 against re-using disposable items. If executed this will be an excellent move towards providing healthcare services the way it was designed to. On the other hand, the financial implications of such action will be huge, rendering many procedures outside the reach of an average Indian household.  

Capping profit margins

Capping profit margins for such procedures is another way to curb the cost, but that can have disastrous consequences. For a private business enterprise, less profitable procedures will soon be replaced by more profitable ones, regardless of the clinical need. Unless a shared-risk model such as health insurance or government assistance picks up the tab, or robust government healthcare set-ups that are readily available across the country providing high-quality services, the re-use of medical equipment are here to stay. 

Heart attack is the quintessential medical emergency. It presents itself in many forms, with ST elevation myocardial infarction (STEMI) being the worst kind. In developed countries over the past two decades, STEMI-related mortality has come down dramatically, owing in part to emergent angiography and opening of the blocked blood vessel by placing a metallic stent (in a procedure called primary angioplasty). Medical systems in most of the developed countries emphasise opening the occluded vessel within 90 minutes of diagnosis (door-to-balloon-time). An inferior alternative is the administration of clot-dissolving medicine, given as an injection. Primary angioplasty not only saves more lives when compared to medicine alone, it also improves the quality of life. Since primary angioplasty costs more to the patient (compared to medicine alone), Indian healthcare set-ups often resort to medicine alone to keep the cost low.  

Early intervention also entails having a robust transport system available for sick patients to be transferred to an equipped facility should a patient arrive at a smaller centre first. Such a system requires additional infrastructure, adding to overheads and hence the cost. The lack of such a system certainly keeps healthcare costs low, but at the cost of human lives. Obviously there are private institutes with high regard for improved clinical outcomes and they do primary angioplasty for a majority of STEMI cases that come in, but such institutes are too few and far between. More so, such institutes do run the risk of not getting reimbursed for their services when patients are presented with the bill later on. With no financial guarantee from the government in such cases, it’s a difficult business practice to promote for any enterprise. 

Diagnosis-Related Group (DRG) is a system of labelling hospital services into individual products and tie reimbursement according to each DRG. For example, routine cholecystectomy (removal of the gall bladder) can be put under a DRG and reimbursed a fixed amount regardless of the actual cost to the hospital. While the DRG-based payment model provides a platform to develop fair and transparent reimbursement policies, it does run the risk of profit-maximising tactics such as overstating the illness, providing the lowest service quality, compromising on investigations and treatment, and so on. The Center for Medicare and Medicaid Services (CMS) in the United States utilises a DRG-based bundled payment system and has laid out vigilance to ensure that unethical profit-maximising practices are discouraged and penalised.  

Treatment packages

The Indian private healthcare system has a similar DRG-based cost structure called ‘package’. While the ‘package’ model promotes low-cost healthcare since hospitals can gain competitive advantage by offering a lower-rate package for the same DRG, negative externalities sometimes overrun its positive aspects. In an attempt to keep the cost of the ‘package’ low and homogenous, ‘package’ charges are typically not adjusted for age or pre-existing co-morbidities that may drive up the cost of the procedure, or there may not be enough financial buffer to accommodate the additional cost of any unforeseen complication. Inherent biases are quite obvious and lead to conflicts where, just like any other contract work, business enterprise tries to minimise the incurred cost while consumer (the patient, in this case) attempts to maximise their care and stay.  

As a cost-cutting measure, two key components of this model are often missed. First, oversight to ensure that no unethical cost-cutting strategies are being employed. This also includes liability for any events that may occur after discharge as well (for a finite period of time). Second, ‘package’ price adjusted for any risk factors that predict higher cost than usual as well as buffer for any complications. 

Cost-combating strategies are not restricted to these scenarios. From a patient’s first encounter to the final delivery of any service in any field of medicine, the system struggles to lower the cost as much as possible. While most of the strategies are valid, many are undesirable or may impose risks on the patient. Even procedures or tests which seem to be costly are watered-down versions of what they should be, thanks to the cost-sensitive market. I do not believe higher cost leads to better care, or vice versa. I do however believe that our approach towards healthcare costs in India needs introspection. The healthcare provider’s medical decisions should be clinically, not economically, driven. Similarly, hospital business enterprises should provide services that are medically relevant even if such services are economically unviable. To achieve these, we as a society will need to provide economic security to healthcare providers to enable them to make unbiased decisions free of financial repercussions. Hospitals will need to have their own safety net so that financial losses from one kind of service can be adjusted with a more profitable product. Compensating for lack of vigilance of industry practices by price-throttling a profitable product is bound to have a negative impact on how both healthcare providers and enterprises work. 

Bracing for medical expenses

Mostly seen as a sudden, unexpected burden affecting a few unfortunate ones, healthcare expense is anything but selective and as a society we don’t seem to be prepared for it. Our society favours reserving funds for our sons’ or daughters’ wedding over our own future health (both are inevitable expenses). Financial assistance in the form of gifts are social norms across acquaintances during social events such as weddings, but there is no such social obligation to help our friends and family when it comes to healthcare expenses. Humans in general don’t fare too well preparing for future disasters and it is not uncommon for a person to have no discrete financial reserve for healthcare needs even after 20 years or more of earnings.  

In a country where only a minority of the population is covered by health insurance or any other form of shared risk pool, where the entirety of the healthcare bill is paid out-of-pocket without any measurable social assistance, low-cost healthcare is unlikely to ever be low enough to be constituted ‘affordable’. People easily mal-adapt seeking the lowest-cost healthcare (or worse, don’t seek healthcare at all) disregarding the quality of care delivered, and all the while private healthcare systems continue to work their way to drop the cost further. Quality here is not restricted to the physical products themselves, but encompasses professionalism, compassion, empathy, humanity, facetime with the healthcare provider, medical knowledge and its implementation… the list goes on. Each of these traits imposes indirect economic costs on the system. If not accounted and compensated for, these traits are dropped early on to minimise healthcare costs. If quality is not valued, be it in clinical care, medication, equipment or procedures, it will stop featuring in regular transactions as seen commonly. Humanity costs time and money to earn, but unfortunately doesn’t have any intrinsic monetary value in the commercial market. Humanity doesn’t pay the bills.

As the developed world is innovating on low-cost healthcare, it is worthwhile to introduce ourselves to some of their practices. These include preventing diseases in the first place, reducing disease-related morbidity (physical and psychological independence, reduced hospital stay, hospital re-admission rates and so on), minimising complications by public reporting and education, evidence-based medicine (minimise unnecessary or unproven treatment/procedures), de-fragmentation of care, incorporating greater number of lower-risk population into shared risk and so on. The role of healthcare insurance that plays into all this makes for an interesting discussion. Clinical, administrative and regulatory bodies ensure such measures are taken with an intent to improve outcomes while the price is dictated by market forces. Although not foolproof, such an approach is far likely to lower overall healthcare cost without compromising on the quality of care delivered. 

We are riding a wagon of low-cost healthcare that doesn’t seem to have a destination. Ethical or not, (the healthcare) market will keep delivering low-cost products till demand exists. In such an environment, quality is not revered, human values are not compensated, and research and development is non-existent. Our low-cost healthcare comes with a long, boring fine print written in an incomprehensible language. It costs us our health, quality of life, and longevity. While the problem is quite obvious, the solutions may not be. Third-payer systems like health insurance is a valid shared risk model that combats many of the issues listed here, but it introduces another set of problems (still, a far better trade-off). National health insurance is a great idea but to implement it in a country like India which spends less than 2% of its GDP on healthcare almost seems impossible. Social safety nets are often unreliable and lack accountability.  

Introducing new non-profit or government set-ups to deliver excellence in clinical care will certainly bring healthy competition to the private sector. Public-private collaboration in the form of government-assisted private set-ups or public hospitals with regional participation can be put in place. Most important of all, though, we have to centre stage healthcare. It’s time we addressed the elephant in the room.

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