Price Controls – Its Workability in the Health Sector
iasparliament
May 08, 2018
What is the issue?
Delhi government has proposed to limit profits margins of hospitals, which dealing in drugs, devices and services.
While this appears to be a sensible way to protect consumers from profiteering, there are implicit challenges.
What is the proposal?
The proposal is for capping profits for a range of medicines (and other devices) at 50% of the procurement price or manufacturing cost - whichever is lower.
The recommendations are seen as a reaction to the recent public outrage that followed the exorbitant prices charged by a private hospital for dengue.
The bulk of profiteering was found to be involving enormous mark-ups on drugs and such items as surgical gloves and syringes.
But while these recommendations are electorally popular, it doesn’t seem practicable under the current context.
What are the problems?
Administration - It is unclear how costs can be computed with accuracy as manufacturers don’t divulge manufacturing costs publicly for most products.
Computing a “fair procurement cost” will be equally tough for the same reason.
Hence, the basis of the 50% limit can be open to endless interpretation, which would result in numerous litigations being filed.
Monitoring hospitals to ensure that they follow these pricing norms is a challenge as the state government doesn’t have the resources for the same.
It will also be difficult to stop hospitals form resorting to innovative ways to circumvent the cap on profits (ex: setting up of supply subsidiaries).
Supply Issues – The proposed administered pricing for medical procedures ignores factors such as the – doctor reputation, and quality of service.
If their earnings are capped, reputed doctors might migrate to other jurisdictions – which might cause shortage of doctors in Delhi.
Also, it is to be noted that the previous attempt by the central government to cap medical stents (heart implant) had resulted in its supply shortages.
Such a scenario might get created across medicines if Delhi’s comprehensive profit caps are implemented.
What is the way ahead?
It is indeed a fact that private hospitals had got many subsidies from governments to enable them provide their services at cheaper costs.
But most hospitals are charging patients exorbitantly in their pursuit for money, a malice that needs to be addressed.
But considering the multiple challenges, capping costs isn’t a sustainable solution and the government needs to address the root cause of the problem.
The acute shortage of public healthcare facilities is what is giving the private hospitals headroom to fleece the masses.
Hence, it would be prudent for policymakers to increase healthcare infrastructure which is currently far short of international standards.
Significantly, with about 2.71 hospital beds per 1000 people, Delhi fares far behind WHO recommended 5 beds per 1000 population.
