Hospitals 1: India can do without large for-profit hospitals

Large for-profit hospitals should be banned, made illegal, thrown out, and what not. By now numerous experiences with for profit hospitals, and I have come to this conclusion. And I was not surprised to know that I am not the only one obviously who thinks so.  Initially I was surprised and later aghast at the near unanimity in the observations of scores of relatives accompanying patients, gathered in conversations during umpteen nights and days, over chai and chips, sometimes with other family members present, sometimes alone.

Why would the liberal economist in me call for banning for-profit hospitals? There are a very specific set of factors. India is not ready yet for profitmaking in tertiary healthcare. It will be ready when it can regulate and monitor better, till then we need to wish bye bye to Medicity, Max, Fortis etc. and whatever else that may be coming up.

The reason lies in a set of factors specific to the health sector. Unlike in other services the user of health services is extremely risk averse, and his main source of information is the person who is selling him the service (doctor or health care provider). Moreover, it takes a lot of guts and conviction to change your health care provider midway through a treatment process. In other words, we get stuck to the provider and do pretty much what he says. This is not how efficient markets work, where the user should be able to change his provider easily and fearlessly.

What effectively occurs is that our doctor is intimately familiar with the idiosyncrasies of our body and ailment; come hospitalization time, he recommends the hospital he is a consultant with.  Now the patiet has no option but to do the doctors bidding, we do not want to risk a completely new doctor to oversee our case, and so the doctor and as a result the patient is tied to that hospital in that there is no free choice (Market failure number 1). Next the doctor gets paid on a per case basis and so has an incentive to increase cases recommended for hospitalization (possibility of Market failure number 2). Then the hospital asks you whether you have insurance at the time of admission and before suggesting what kind of room you should take up (market failure number 3). Now not only your main doctor, but even other hospital doctors start to suggest tests and procedures. They also get paid on the basis of the revenues earned from a patient and so will over medicate etc. (market failure number 4). The hospital itself has received investment from investors who are demanding higher than normal returns. VCs and private equity players tend to prefer 5 to 10x returns as any entrepreneur will tell you, the pressure is intense – they will not control but abet and mostly actively push extracting greater revenues from each patient (market failure number 5). Now instead of the hospital end up working in tandem, the typical checks and balances in a principal agent relationship is eliminated (market failure number 6).

The net result, this is informal statistics admittedly, but by my count, three out of four users of for profit hospitals feel they were cheated either through misinformation, over-charging, over-medication, unnecessary testing or procedures, or simply delaying of release from the hospital. In some cases, we simply end up spending more for decent quality service, but in others such as unnecessary procedures, over medication, or unnecessary diagnostics much bodily harm is caused to the patient and psychological harm to a much larger group around him.

Profit-making is at the cost of simple human ethics, and only a blind society would let this cancer grow. The Trehan’s of the world may be amazing and charismatic doctors, but please don’t let them run a for-profit hospital, I am fine with it if they practice in St Stephens hospital or at AIIMS.

Admittedly, all of this, can in theory be checked if there was good regulation. Ancient societies resorted to a moral and ethical code backed by fear of god to regulate health care providers. Modern societies seek to do it through medical councils and regulators. All of this is well known, but regulation is not really working well in India and is perhaps much worse than direct government control. The problem there is that regulators in India are highly susceptible to inefficiency and corruption, and the controls on the regulator are themselves quite ineffective.

Is this a problem only for large private hospitals? What about private individual doctors? And what about negligence within government hospitals? Should we ban them as well? I will get to that in the next one, but they are a much larger problem and banning them will have an immediate impact on health care access of the masses. But private for profit hospitals, they are at a nascent stage can be nipped in the bud quite easily.


3 thoughts on “Hospitals 1: India can do without large for-profit hospitals

  1. Excellent article Laveesh,
    People respond to incentives (as uttered by atanu dey)
    Doctors have an incentive in getting patients spend more.
    You hit the bull’s eye, when you say we don’t want to change the doctor midway….
    Students can take transfer certificate to join a new school, but patients cannot..

    Having medical insurance is becoming a bane, which makes doctors to splurge in unnecessary medications & tests…

    Only if we can get doctors to claim incentive for reducing time, effort & money in curing patients, only then we can breathe well…. Else add the saying goes. “hospital beds are just parked taxi with running meter”


  2. I also wanted to write an article on the state of health sector in India but I feel your article also sums up the state of this sector. It is abhorrent that doctors of India have sunken to such level that they prioritize money over lives of other people, even of poor people. It clearly tells that punishment indeed keeps immoral people in check and lack of law and order is aggravating this problem.
    I feel that doctor’s job is that of health consultant wherein his duty is to heal the patient in minimum expenditure. And government must make it mandatory that doctors keep all the files related to patients that they have consulted and government could anytime audit it If there is any lapse in service wherein either the disease has been misdiagnosed or mus-managed or the patient recovered in the amount more than it could then the doctor should be penalized. It is prevalent practice to write expensive medicines when cheaper medicines are available, writing unnecessary tests and many more such immoral practices.
    It could be checked by three steps viz., Accountability, Transparency and Responsibility. Any lapse of any of these three must be strictly dealt with strict punishments if the government really want to improve this sector. Corruption is prevalent starting from admissions in colleges to hospitals. The above three steps could solve the problem both in private and public sector.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s