Very few of these promises actually came to fruition, though. For instance, a pharmaceutical policy and a policy to curb Chinese imports from dominating the bulk drugs market were announced, but never actually enacted. The latter is especially interesting because in 2017, as The Ken reported, Indian pharma’s dependence on Chinese bulk drugs was flagged as a security concern by no less than the Prime Minister’s Office.
Meanwhile, a Bill that would check the quality of medical devices—drafted 12 years ago—never made it in front of Parliament for approval. The Bill could prevent a repeat of what happened between 2004-2010, when some 4,700 patients fell victim to faulty hip implants by pharma company Johnson & Johnson (J&J).
The government even talked up a uniform ethical code—one that penalised pharma companies for incentivising doctors to prescribe their brand. It was, however, never made mandatory. As The Ken had reported in November 2017, the uniform ethical code for pharma marketing practices (UCPMP) was announced but never implemented. This could have broken the unethical relationship between doctors and pharma companies. Could being the operative word.
E-pharmacies also remained stuck in legislative limbo. Legislation approving e-pharmacies has been in the works for about two years now, but still hasn’t been finalised. Meanwhile, e-pharmacies continue to battle offline chemists in courts. Most recently, in an affidavit to the Delhi High Court in February, the Ministry of Health requested a six-month extension to legalise e-pharmacies.
And, if e-pharmacies remained in limbo, IHIP—the integrated health information platform—met its end altogether. Envisaged as a platform that could bring all hospitals under one system, it was meant to make healthcare accessible, affordable, transparent, and help insurers get better data to control hospital treatment prices. This was in January 2017. By mid-2018, IHIP was scrapped. In its place, the government opted for an even more ambitious scheme—Ayushman Bharat.
In fact, Ayushman Bharat, the world’s largest health insurance scheme, was one of two of this government’s healthcare initiatives that actually took flight. The second was the use of the Drug Price Control Order of 2013 to cap prices of essential drugs and devices. Ayushman Bharat, meanwhile, has controlled hospital treatment prices.
Both of these are good in principle. But there’s a problem. They are at odds with each other.
Ayushman Bharat is an insurance scheme that is predicated on large-scale insurance providing support to 100 million underprivileged families. It protects the vulnerable from the risk of falling below the poverty line after spending on treatment. It also creates paying capacity among those who couldn’t afford hospital treatments in the past.
In return, it gives the government the power to influence the market in a way that lowers the price of treatment in private hospitals because hospitals are promised a large volume of patients. With this move, the government forewent all of its long-term policies for a market-based approach.
So far, so good.
But the BJP government went one step too far. A step in the opposite direction, even. Because with its second initiative—drug and device price control—the government ignored the market forces that control profits and prices to make healthcare available to all. Hospitals, after all, benefited tremendously from the margins on drugs and devices.
As the government played two roles simultaneously—one as the policymaker and the other as the insurance provider—to control prices, the sector went from doing almost too well in terms of profits to stagnancy.
The results of this policy cocktail of ideologies—Ayushman Bharat being traditionally understood as ‘Right’ and price control as ‘Left’—are starkly visible now.
Need a doc
In 2017, The Ken wrote that large multi-specialty hospitals like Max and Fortis Healthcare were going into losses. And in 2018, we followed it up by writing about the trend of small hospitals selling out. Over the last six months, private equity (PE) funds have been negotiating stakes in both large hospital chains like Max and Fortis as well as small hospitals. This, as the supply of hospitals willing to sell outgrows the demand.
An advisor to a Mumbai-based private equity investor, who did not want to be named, shared a list of about 500 hospitals who were willing to sell. This list, he says, is of hospitals with 50-300 beds in northern Indian states including Rajasthan, Punjab and Madhya Pradesh. His concern, however, is that most do not meet the Private Equity (PE) funds’ criteria for buying. Majority of these hospitals are small to midsize—50 to 100 beds—in tier 2 and 3 cities, and earn less than 15% EBITDA (Earnings before Interest, Depreciation, Tax, Amortisation).
“Investors do not want to invest in a hospital that earns below 15% EBIDTA as before the price control of devices, the EBIDTAs used to be anywhere between 20% and 40%. Price control affected everyone, now the wounds of small hospitals are beginning to show in low earnings and low valuations,” he said.
The low earnings are due to three reasons. First, capping of prices of cardiac stents and orthopaedic implants that raked in markups as high as 650%. Second, implementation of the Goods and Services Tax (GST) and demonetisation that hit hospitals’ cash flows. And finally, the erosion of cash-paying patients by state health schemes and Ayushman Bharat, which can negotiate rates far lower than market rates.
“What was happening in hospitals with targets for doctors and unreasonable margins on drugs and devices was not right; but now, the pendulum has swung from profiteering to small hospitals reeling to survive,” added the advisor quoted above.
One would think that the government’s plans would have made patients’ lives easier. Gurmit Chugh, the managing director of Indian stent manufacturer Translumina Therapeutics, however, feels otherwise.
According to Chugh’s estimates, of all the patients who need angioplasties, 45% are covered by government insurance schemes and 15% by private insurers. These are growing, he says, but are not affected by the capping of prices of stents.
The 40% who pay cash have also increased over the past two years, but not disproportionately; hospitals have increased the cost of the treatment to offset the increase in the price of the stents, he said. It means a slightly larger number of patients are now able to afford angioplasties who could not in the past, he added.
“Lowering the cost of stents did not result in a lot more angioplasties. It has brought in consistency, transparency, stability and confidence for patients,” he said. As far as business is concerned, he says that the proportion of MNCs to Indian companies in the cardiac stents market used to be 3:1, but it is now equal. The increase in market for Indian companies has been captured by three companies that dominate 80% of the market—Translumina, Sahajanand Medical and Meril Life Sciences.
A representative of an association of small and mid-sized Indian pharma companies says that the domestic market’s moving annual turnover grew by 9.7% to Rs 1,29,601 crore ($18.71 billion) by the end of February 2019, despite price control in India. He wonders what the industry’s growth would’ve been had the DoP implemented the pharma and bulk drugs policies.
If the government had the intention of executing, they would’ve, he added. For instance, the National Pharmaceutical Pricing Policy was announced in 2012 and Drug Price Control Order (DPCO)—responsible for the price control of drugs and devices—was passed in 2013. It was amended, yet again, by the government sans discussion last month.
“Overall, there was a clear move to streamline the healthcare sector using a populist approach of price control and insurance schemes. The government went after them, ignoring everything else,” said the CEO and founder of an NCR-based healthtech startup, who did not want to be named as he didn’t want to risk upsetting the government.
Insurance? Just a piece of paper
Have the insurance schemes worked though?
A senior executive with a US-based health insurance company feels that the Indian insurance regulator—Insurance Regulatory and Development Authority of India (IRDAI)—has done its job well.
“There is a lot that you (an insurer) can do now. Health insurance companies can now do pilot products, which they could not do till a couple of years ago. The regulator has created a platform for innovation,” he said. However, he added that insurance can develop better if hospitals are regulated. Since there is no regulator for hospitals, clinical outcomes are not published; we are a fee-for-service model with zero accountability, he says. “It is the Wild West out there. Insurer has to pay for any room that claims to be a hospital and generate a bill,” he said.
Even with little regulation, the hospitals are not willing to join insurers, said the CEO of a Delhi-based third-party administrator (TPA), who works with public as well as private insurers. There is a general scarcity of hospitals that the insurers want to empanel. Several hospitals do not meet their criteria, and those that do often prefer cash-paying patients instead of getting on an insurer’s network, he added. (see chart below)
He estimated that there are between 17,000-20,000 hospitals working with insurers across the country via TPAs or directly. But over 60% admissions happen in only 2,000 hospitals. The access to quality healthcare has not grown despite the growth in insurance as the majority of hospitals do not see rural areas as a viable market, he added. “The hospitals that insurers want to empanel are the ones who can keep efficiencies high and overheads low. They improve access but they are few and far between.”
The government hopes that its magic wand, Ayushman Bharat, can do what private and public insurance markets have failed to. It plans to entice private hospitals to build in rural areas, spreading wide and deep into the country to make healthcare accessible.
But does the government have the right spells to make it work?
The magic wand
Ayushman Bharat has so far empanelled nearly 15,000 hospitals, both private and public. 1.7 million beneficiaries have been admitted to various hospitals. The scheme got a major piece of India’s health budget this year—Rs 6,556 crore ($946.8 million) of Rs 63,298 crore ($9.1 billion) was allocated to it. But it comes at the price of other budgets being slashed. The budgets for rural healthcare (National Rural Health Mission), non-communicable diseases, injury and trauma, the National Programme for Prevention and Control of Cancer, Diabetes, Cardiovascular Diseases and Stroke, and the national immunisation programme (including pulse polio) were all slashed.
India’s health secretary Preeti Sudan and the National Health Mission director Manoj Jhalani did not respond to The Ken’s questions on how other components of the health budget were affected to accommodate Ayushman Bharat.
Imrana Qadeer, distinguished faculty at the Council for Social Development, makes an observation based on the National Sample Survey’s (NSS) health data of 2014, which showed that in an estimated total of 248.5 million families in India, there were 57.2 million cases of hospitalisation. “This means, out of the 100 million families, there would be roughly 23 million hospitalisations a year. That from the Rs 6,556 crore ($946.8 million), government funds, health insurance agencies or trusts on average have only Rs 2,850 ($41) to pay per hospitalisation, assuming there are no administrative costs or insurance overheads,” she says. The mean out-of-pocket expenditure (OOPE) per hospitalisation is much higher at Rs 19,210 ($277). The scheme can just about make a small dent in reducing OOPE, not quite what was promised in the BJP’s 2014 manifesto.
Indu Bhushan, CEO of the National Health Authority, which implements Ayushman Bharat, disagrees. He says that the hospitalisation rate for the richest 40% of the population in the country is double that of the poorest 40% (according to the NSSO 71st survey, excluding childbirth).
He says if we consider the current hospitalisation rate for the poorest 40%, there could be about 13 million hospitalisations in the initial years. With the average expenditure per hospitalisation as it exists currently, Ayushman Bharat has enough funds to cover the cost of complete hospitalisation with no out of pocket expenditure during the admission, he adds. “This is very much in line with the objective of the scheme to reduce the burden of catastrophic health expenditure on the poorest of the poor,” Bhushan says.
Bhushan also adds that with the states’ share of contribution (40% in most cases), the total budget for the scheme comes out to be somewhere around Rs 10,000 crore ($1.4 billion). “This is a good increase from the previous year. Government has assured that funds will not be an issue for this scheme,” Bhushan says. This money will mostly get spent via private hospitals. “More than 51% of all hospitals empanelled under Ayushman Bharat are private hospitals (7,449 private hospitals) with about 75% of these hospitals being multi-specialty private hospitals. Moreover, two-thirds of all treatments under Ayushman Bharat till date have been delivered through the private sector,” he says.
Essentially, the government needs the very hospitals it was blaming three years ago.
In the first three years of its tenure, it made health a political subject by blaming the private players in drugs, devices and hospitals of profiteering—they provide 63% hospital beds in India.
Today, its humming a different tune. Of course, it isn’t easy for the government, as an insurance provider, to partner with private players in insurance schemes. Though insurance is built to increase paying capacity and indirectly finance hospitals, drugs and devices, with the Indian government playing insurer, it hasn’t done so in India.
As the BJP contests yet another election aiming for a grander tenure, it could use a careful examination of all that it didn’t execute, a full-body check-up so to speak. And if in need, it could always seek insurance, one would imagine?