OPINION | Vault matters: Who's to be blamed for steep healthcare cost inflation? 

The healthcare sector has attracted investments worth $15.5 billion and much of the money is coming on the back of an increasing number of Indians

There's this famous scene from the Tamil movie ‘Ramana’, which starred late actor Vijayakanth, who explains to a poor family how a dead person can also get treatment in a multispecialty hospital and be slapped with a hefty bill. This 2002 flick was later remade by Akshay Kumar in Hindi as ‘Gabbar’ and this classic scene was well-preserved.

Maybe the scene is exaggerated to suit cinematic needs, but till date (and maybe even in future) it connects with audiences and evokes mixed emotions, initially a laugh which quickly transforms to anger.

Inflation has moved to a new trajectory post-Covid

Doctors may be gods in human form, but is healthcare still a service, is the question doing the rounds. For one, it’s the hotbed of investments for private equity. Since FY20, the healthcare sector has attracted investments worth $15.5 billion and much of the money is coming on the back of an increasing number of Indians who can afford quality healthcare.

On the other hand, healthcare inflation for FY25, according to reports, was in the ballpark of 14 percent. It’s a relief that it has come off quite significantly from the 20 - 24 percent levels seen immediately post-Covid. Yet, this number is a cause of worry because it has crossed or doubled the usual inflation levels seen prior to pandemic.

Friction between hospitals and insurers

Now consider the third angle here, the ongoing tussle between the hospital associations and health insurance companies. It has become an almost regular feature in the last two months that the association bans a certain company, and then a kind of settlement is reached within a few days and the ban is lifted.

The tussle between the hospitals and the insurance companies is often on the quantum of bills, or what are the costs that can be allowed or disallowed when claims are being put forth by customers.

Insurance companies often take a moral high ground that if a patient wants to treat hospitalisation equivalent to a couple of days of stay in a five-star hotel, why should they allow such a claim, especially on the room charges?

Investors’ time horizon influences healthcare cost

Such exuberant spends on the room and facilities is what, according to a few insurance companies, is leading to higher healthcare inflation. But if $15 billion has been pumped into the healthcare business, it is only natural healthcare is going to be five star and nothing less.

Meanwhile, a few billion dollars are getting pumped into the insurance sector as well and there is decent amount of private equity interest in the space too. What this means is that at both ends of the spectrum, supply and demand (hospitals and insurance companies) the nature of capital entering the business is changing and becoming more medium-term in nature.

It's not the patient capital which is here for a social cause. It is capital which is here to stay for 5 - 7 years or at best 10 years. The capital comes with the mandate of being returned to its owners after a certain period of time and to deliver steady dividends during the tenure of investment.

In short, money with a capitalist approach is entering a space which needs socialist attention. This visible mismatch in the capital structure is bound to ensure that the healthcare space, including diagnostics, is approached from a commercial angle and not with the motive of actually providing healthcare facilities at an affordable cost.