Healthcare economics: How hospitals can stay viable without pushing costs onto patients

When it comes to private healthcare, the narrative is that the charges are high. From the courts to patients, the demand is for private hospital charges to be regulated. This impression that private hospitals overcharge patients cannot be further from the truth. Private healthcare is India faces the challenge of delivering modern quality healthcare at an affordable price while continuing to invest in the latest medical technologies for the patients’ benefit and at the same time battling inflation with rise in salaries of doctors and paramedical staff, consumables and more.

This angst is understandable. While Out-of-Pocket Expenditure (OOPE) as a share of Total Health Expenditure declined over a decade from 64.2 per cent to 43.4 per cent, it is still a significantly large percentage with households financing 56.44 per cent of current health expenditure and nearly 31 per cent of the population face financial hardship from out-of-pocket payments.

This may lead one to think that all increases in costs are just shifted on to the patient. But this is not true. An increase in tariff is usually the last option on the table. The scrutiny is on how we work and what can be done to reduce costs without compromising quality. The fact is that every inefficiency inside a hospital eventually lands on a patient’s invoice and it is this that we must tackle first!

Waste – The first place to look

An OECD’s review on Tackling Wasteful Spending on Health estimated that around one-fifth of health spending makes little or no contribution to better outcomes. A study of US healthcare put the cost of waste at $760 billion to $935 billion a year, about 25 per cent of total healthcare spends. Of this administrative complexity alone accounted for $265.6 billion. Savings from interventions that address waste were $191 billion to $286 billion.

Hospitals in India run on far thinner budgets, yet the same categories also contribute to waste – avoidable complications, repeat tests, idle operation theatres, and too much paperwork that delays discharge.

Infection control to control cost

The top-of-mind factor when one says infection control is hospital-acquired infections (HAIs). A study of the impact of HAIs on costs and clinical outcomes found that an infection acquired in the ICU roughly doubled the median treatment cost, from Rs 92,893 to Rs 1,80,469, and stretched ICU stay from 6.7 to 13.4 days. Another recent study in a tertiary hospital reached a similar conclusion with length of ICU stay being the main reason for the added cost.

It is here that hospitals must realise that while hand-hygiene audits, ventilator and catheter bundles, and antibiotic stewardship are clinical programmes, they also belong on a finance committee’s agenda. A patient who avoids a bloodstream infection goes home sooner with better clinical outcomes, pays less, and frees a bed for the next admission.

Fix the process

Process redesign is not glamorous, but it works. Methods utilising lean tools such as value-stream mapping and root cause analysis help to reduce waste and improve productivity. A survey of private hospitals in India found that management commitment to lean practices had a statistically significant effect on both operational and financial performance. High volumes, standardised protocols and strategic use of data can produce outcomes on par with US centres at a fraction of the cost. Theatre scheduling, discharge planning and bed turnover may not be glamorous but lead to gains that can be passed on to the patient.

Buy better

Pharmacies alone accounted for Rs 1.63 lakh crore, or 21.2 per cent of current health expenditure in 2022-23, up from Rs 1.53 lakh crore in the previous year. During the same period, private hospitals increased their current health expenditure (CHE) share from 26.96 per cent in 2021-22 to 30.83 per cent. It is here that pooled procurement can help to lower prices, especially for large buyers. Autonomous agencies such as those affiliated to state governments can negotiate and secure lower prices. Medicines and consumables deserve the same scrutiny. Hospital groups can apply the same logic and manage inventory more scientifically through central purchasing, a disciplined formulary and quality-assured generics.

Transparency about price

Efficiency helps patients only if the savings reach them. Fixed package prices for common procedures, published in advance, protect families from open-ended bills and push hospitals to manage and prevent any variation in cost.

Of course, why these points can help hospitals stay financially viable without pushing costs onto patients, none of this removes the need for higher public spending. government health expenditure is still only 1.43 per cent of GDP. Private hospitals cannot wait for policy to support cost structures, though. Staying viable without burdening patients must be decided in reducing waste, choices about infection, patient flow and optimal purchasing. These steps may not make headlines but will have impact and help viability in the long run!