Supreme Court’s push to fix medical rates is unjustified and counterproductive

Since health is a state subject in India’s federal system, it is unclear if the Court’s ruling extends to states not covered by the Act.

In the Indian blockbuster series of judicial interventions in policymaking, the latest episode on fixing the rates of medical services charged by hospitals in the country dropped last week.

The Supreme Court of India, overcome by the pressing concerns of rising healthcare costs and disparities in costs of treatments availed at public and private hospitals, heard a public interest litigation (PIL) filed by the NGO ‘Veterans Forum for Transparency in Public Life’. In the characteristic style of PILs, the Court directed the Union Government to find a way to fix the price bands for all medical procedures and treatments offered by hospitals in the country and report back in 6 weeks. Or else, the Court threatened to impose the medical rates charged under the Central Government Health Scheme (CGHS) on all hospitals as an interim measure. Hospital stocks responded promptly by shedding more than a few points.

However well-intentioned, this move by the Court towards curbing the presumed arbitrariness in prices charged by hospitals defies both legal and economic logic.

A Legal Examination

The PIL relies on a particular Rule 9 of the Clinical Establishments (Central Government) Rules, 2012 that requires all hospitals to display the rates charged for their services in a conspicuous place and charge rates as per the price bands notified by the Union Government, after due consultation with the State Governments.

In its order, the Court notes that the Clinical Establishments (Registration and Regulation) Act, 2010, was “enacted with an avowed object of providing medical facilities to the citizens at affordable prices” to buttress its position. Unfortunately, this does not hold water.

The Act was enacted to “provide for the registration and regulation of clinical establishments with a view to prescribe minimum standards of facilities and services,” as evidenced by its text. By no stretch of the imagination can this be construed to mean it is an affordable healthcare law.  This Act applies in 12 states and 7 union territories, while the rest of the states have similar legislation in place. Since health is a state subject in India’s federal system, it is unclear if the Court’s ruling extends to states not covered by the Act.

Instead, the Court should have shifted its focus to the validity of Rule 9 itself. A cardinal legal principle is that any delegated legislation issued under a statute must not overstep the boundaries of the parent statute. The Clinical Establishment Act nowhere confers powers upon the Union Government to fix medical rates. In such a case, Rule 9 must be held ultra vires the parent Act and consequently struck down. The Court has abdicated its constitutional mandate of legislative interpretation by sidestepping this question.

Further, the threat to enforce CGHS rates across the board is unjustifiable. CGHS works on a model of empanelled hospitals that offer health services to government employees and their families at subsidised rates and is not comparable to all private hospitals. While CGHS empanelment is voluntary, hospital price caps are coercive.

The Economic Counterpoint

Though the Indian healthcare system is a mix of both public and private providers, access to healthcare, especially in rural areas, is limited. There is a shortage of hospitals, labs, and doctors in India’s villages and small towns.

Imposing price caps at this juncture destroys incentives for establishing new hospitals, thereby creating further shortages of facilities and making medical treatment more expensive than now. A hospital is unlikely to offer a particular medical service unless it is profitable within the rates set by the government or is likely to offer it by reducing the quality of service, both of which have far worse consequences for the patient. In the face of absent competition, the incumbent hospitals will gain more market power and can abuse it to the detriment of the patients.

Unfortunately, price controls do not function as a wish granted by a genie, where the government wills it and it miraculously is followed by everyone. Several decades, if not centuries, of evidence should make it evident that price controls have disastrous unintended consequences. It will encourage hospitals to find innovative ways to skirt price caps, like colleges and universities charging ‘donations’ after the government fixed academic fees or cinemas charging more for popcorn and parking after price caps on movie tickets. A hospital can charge separately for, say, registration charges, nursing services, quality of rooms, room service, maintenance and cleaning, ambulance services, and other sundry items to ensure patients are kept on their toes. Given the poor state capacity to enforce price caps and regulate its effects, any hospital visit is likely to turn into a nightmare.

Even the mandate to display standard rates in hospitals is an archaic solution to tackle information asymmetry. Clinical interventions are complex and heterogeneous processes that can vary across medical conditions and patients, the rates of which cannot be captured effectively on a blackboard placed in the hospital. Digital apps and a developed market for second opinions can solve this problem more effectively.

What Can Be Done?

None of this is meant to take away from the distressing healthcare situation in the country. The solutions lie in investment in public health and improvement and expansion of government health facilities.

Instead of having multiple substandard hospitals in dense urban areas, where there is already a number of private hospitals, the government can focus on operating hospitals in select areas where private hospitals won’t go. In the cities, the government can ensure affordability either through subsidies or through government run insurance schemes. There is also scope for tech interventions such as an effective rating and discoverability platform for hospitals.

Given that our health and well-being is involved, the Court and Union Government must resist the temptation of supposedly easy but unworkable fixes like price caps and tread carefully.

Shrikrishna Upadhyaya and Anupam Manur work at the Takshashila Institution, an independent think tank and school of public policy. Views are personal, and do not represent the stand of this publication.