Tariff deadlock in healthcare: Who pays for medical inflation?

The disruption of cashless services for Bajaj Allianz policyholders last week has pushed a broader issue to the fore: how India should set fair hospital tariffs as medical inflation rises.

Hospitals argue that package rates have been frozen for years despite higher costs for equipment, medicines, and staffing. Insurers contend that unchecked tariff hikes will force up premiums. With no independent mechanism to settle the gap, patients are left uncertain at the point of care. According to the Insurance Regulatory and Development Authority of India (IRDAI), health insurance premiums grew nearly 21% in FY24, reflecting both rising demand and the strain of medical inflation. Yet, there is no framework to benchmark or revise tariffs between insurers and providers.

Academic research also points to this gap. A 2025 article in The Indian Journal of Health Economics (Springer) notes that while private health insurance is expanding rapidly, the absence of transparent tariff-setting “contributes to frequent disputes and directly undermines the predictability of cashless treatment.” The study warns that unless India creates a neutral mechanism to balance costs, policyholders will continue to face uncertainty over whether their cover works in practice.

Hospitals push back

Following Bajaj Allianz’s advisory suspending cashless services at several hospitals, the Association of Healthcare Providers of India (AHPI) met with the insurer to raise member concerns over viability and patient impact. AHPI flagged unresolved issues that, it said, are placing hospitals under financial and operational stress and compromising patient care and safety. It also questioned the proposed General Insurance Council (GIC)-led “common empanelment” and the abrupt stoppage of cashless services, describing the approach as anti-competitive.

Commenting on the matter, Dr. Girdhar Gyani, Director General of AHPI, said: “Our goal is to engage in constructive dialogue with the insurers to resolve these issues in the larger interest of patients. We urge all the insurers to work in partnership with hospitals and immediately restore cashless services at member hospitals. They also need to engage with the member hospitals regularly to revise outdated rates, setting up transparent grievance mechanisms, and respecting clinical autonomy.

The issues we have raised are not about commercial disputes alone, but about the sustainability of hospitals and the rights of patients. Patients are the biggest sufferers when insurers refuse to revise tariffs, deny claims, and interfere in medical decisions. These practices are coercive, unfair, and go against the principles of accessible healthcare.”

AHPI said tariffs “have not been revised by Bajaj Allianz for many years, despite consistent medical inflation and rising operational costs” and that members “cannot lower the tariffs further without compromising on clinical quality.” It urged immediate restoration of cashless services, noting the “unfair financial and emotional burden on patients,” and said it will review its advisory once insurers resume cashless services. AHPI later said that Bajaj has restored cashless services at Medanta Lucknow and Manipal Hospital, Delhi.

Nursing homes escalate to the regulator

The Delhi Medical Association Nursing Home Forum (DMA NHF) has filed a complaint with the Insurance Regulatory and Development Authority of India (IRDAI), alleging anti-competitive practices by private insurers acting collectively through the GIC, including a “common empanelment” that dictates tariffs and commercial terms.

Dr V K Monga, Chairman, DMA NHF, said: “With private insurers controlling over 50% of India’s health insurance market, the insurers are misusing their dominant position to impose unilateral tariffs. This so-called common empanelment strips hospitals of their right to negotiate independently, artificially suppresses tariffs, and threatens the sustainability of quality healthcare services. Instead of promoting competition and protecting patient interests, insurers are hiding behind IRDAI circulars to justify bargaining as a group. This misuse of regulatory directives undermines the Competition Act and IRDAI’s very own mandate.”

The Forum said hospitals are being asked to continue cashless services under expired contracts at old and unviable tariffs, which will lead to compromises in the quality of care and deter investment. It pointed to incurred claims ratios of major standalone health insurers as low as 54%–67% in FY 2024–25, flagging that large portions of premiums go to commissions and administrative costs rather than patient care.

Dr Monga added, “This suppression is not in the interest of policyholders. Insurers are prioritizing their bottom lines over the patients whom health insurance is meant to protect. We are raising this issue in the larger interest of hospitals, nursing homes, healthcare providers, and most importantly, patients. Anti-competitive collusion under the GIC threatens not just providers and patients but the future of India’s healthcare ecosystem. We urge IRDAI to act swiftly to restore fair play, ensure sustainability for providers, and protect patient rights.”

The missing tariff framework

The Bajaj Allianz episode highlights a structural gap. Unlike jurisdictions where independent bodies periodically revise healthcare tariffs in line with inflation, India relies on bilateral negotiations or insurer-led frameworks. Hospitals say long-stagnant tariffs hinder investment and risk service quality; insurers warn that higher rates will be passed on to consumers via premiums. In the middle are patients, facing uncertainty over cashless access when disagreements flare up.

The cashless model was designed to spare families the need to arrange funds at admission. Its disruption undermines confidence in health insurance, particularly for middle-income households. Policy experts say India may need to consider an independent tariff review authority, similar to the UK’s NICE or the DRG-linked systems in Europe and the US. Such a body could periodically revise tariffs in consultation with providers, insurers, and patient groups, linking them to inflation and cost-of-care data.

Dr. Pruthvinath Kancherla, Co-founder of Affordplan, said the conversation should extend beyond hospital tariffs. “Over 90% of a patient’s healthcare journey lies outside the hospital and insurance system. Bringing this into the ambit of hospitals and insurers can create value, reduce inflationary pressures, and ease the burden on all stakeholders.”

He added that the core of medical inflation still lies in inpatient care, which is also where trust issues are most visible. “Ironically, that is the only part insurers cover because it is predictable to some degree. The challenge is for hospitals and insurers to educate and enable people to make healthier choices and seek early interventions, so they do not become victims of medical inflation.”

Experts point out that by taking pricing out of bilateral disputes, India could provide predictability for insurers, sustainability for hospitals, and reliability for patients. Until then, tariff deadlocks are likely to recur whenever costs and reimbursements fall out of step.