Fortis pricing controversy, a pointer to ignored issues in healthcare
E Kumar Sharma
December 17, 2017
A lot has been written on the alleged price markup in the treatment cost of a deceased patient diagnosed for dengue at Fortis Memorial Research Institute, Gurgaon. Something that the hospital, part of Fortis Healthcare, refutes. Its written statement says: "Fortis Healthcare does not charge any drug or consumables above the printed MRP and there is No Violation of Drug Price Control Order."
Also, "It should also be noted that our end price to the patient is very much in line with what other private hospitals in India charge." But then, on Friday, December 15th, as we all know now, the National Pharmaceutical Pricing Authority (NPPA) without either pronouncing Fortis guilty or absolving it of any wrong doing, just confined itself to saying: "NPPA shall be taking necessary follow up action as per existing law and within its jurisdiction." While, one would have to wait to see what form and fashion this takes and what the outcome would be, experts in the industry, feel it is high time some serious introspection is done by both the private healthcare providers as well as by the government.
Some points for the private healthcare providers to ponder over:
1- Price auditing and beyond: On pricing, it is perhaps time to introspect on the extent to which self-regulation can kick in on the pricing of the services they offer. Even if, within the law on MRP, can the extent of markup looked into more closely? How is the price auditing happening? What anomalies is it throwing up? How effectively is the cross-subsidisation of patient costs with multi-tiered pricing being monitored? Is there room for improvement?
2- Rationality: Is there an element of rationality that can be brought into the pricing mechanism that they follow for their patients.
3- Why: Because, if they do not so any self-introspection, price caps imposed by the regulator will come its way. Then, there is no point, private sector complaining about restrictions and checks sought either at the state level - be it in West Bengal or Karnataka or at the central level.
4- Margins already hurting, So?: Agreed, most complain that already, the margins are under pressure. In fact, Fortis in a way suggesting that if it were a profiteering entity then its financials would not be as they are, says in its note: "Looking at individual prices of any single item as a stand alone takes the margin/profit topic out of context. To understand the total profit scenario and overall business performance, one should look at the financial margins for the Fortis hospital business.
As such, it should be noted that the Fortis hospital business reported operating profit (EBITDA) over the last four published quarters of 5 to 6 per cent and a negative PAT(profit after tax) for the same period of time. That is a story that may resonate with others too - at least some of the listed entities - their last five to seven quarters - their financial results have been muted with many complaining that the ROCE (return on capital employed is less than 10 per cent) .
5- Cost structures: Now, considering that pricing is a function of capital cost, input cost, it is time the private sector starts reflecting on its cost structures, which may mean the days of fancy healthcare may get over, but not many will complain. Here, the argument from the private healthcare providers is we are charging as per the MRP so we are well within the law. Fair enough but that need not stop them from taking up a different conversation all together, on whether they can look at reducing the markup, perhaps driven but better input cost management, This, would be self-regulation and not something imposed by a pricing authority.
6, Self-regulation versus external price caps: So, the point essentially is the need to reflect inwards around the concept of self-regulation. The need for this because if that does not happen, healthcare is a politically sensitive subject and will trigger external regulation.
1- The enabler role? : It is good to talk about accessibility and affordability, why are they not becoming an enabler in facilitating a lower pricing ecosystem. What are they doing about the rising cost structures , the industry has been demanding every year that healthcare be granted an infrastructure status so that their cost of raising capital comes down with lower interest burden on the debt that they raise coupled with other benefits such as lower cost of water and electricity, all of which contributes to an overall lower cost structure . Today, the capex per bet is around 10 lakh to Rs 1.2 crore per bed depending on the hospital category , equipment cost is another area where the cost per hospital could range from Rs 1 crore to Rs 100 crore depending on the nature of equipment and with equipment like MRI machines being upwards of Rs 2 crore, there could be reduced taxes and import duties there.
2- Spending inertia: Why is the government still confined to only spending a little over 1 per cent of GDP on healthcare when there is crying need to boost the access to quality healthcare in government hospitals and primary healthcare centres. Despite these, there is still mushrooming of the private healthcare providers and one of the primary reasons we are told is the free market pricing that is still possible. But if the government does not increase its spending and takes measures that curb private sector expansion and new investments, then measures to reduce prices will not be sustainable in the long run.
3, Think healthcare agenda with health included crucially in every state planning, support government hospitals that ensures they do not just becoming the handlers of terminally ill patients sent out by the private sector.
4- Attend to the challenges of a supply constrained market of healthcare. Today, everything in healthcare - from clinicians to beds are in short supply. For the sake of argument, consider, if the government were to say, we are putting Rs 10,000 crore behind creation of healthcare infrastructure with may be supply of additional 35 to 40 hospitals from the government side with mushrooming of several nursing institutes.
5- Insurance: The list is long and if perhaps none of these works, may be some of it will be taken care of by a deepening of insurance that may cut out the share of out -of-pocket spending.