The high cost of India’s private health-care boom

"According to the Parliamentary Standing Committee on Health and Family Welfare, the average private hospital stay costs ₹50,508, vastly more than the ₹6,631 expense in a government facility. Childbirth expenses in private hospitals average ₹37,630, compared to ₹2,299 in public hospitals. The committee has proposed many changes, including standardised package pricing and mandatory pre-treatment cost estimates.

One widely discussed idea is capping private hospital room rates at the average cost of nearby three-star hotels. The committee has also suggested that large corporate hospitals, especially those benefiting from medical tourism, should help subsidise poorer patients under the Ayushman Bharat scheme, offering them regulated rates for beds.

However, there is a paradox. India seeks to attract more private and foreign investment in healthcare, particularly to Tier-2 and rural areas, while simultaneously urging the government to reconsider foreign direct investment rules for existing hospitals. There is a strong argument for continued health care investment in India. Building hospitals requires significant capital for land, equipment, intensive care units, digital systems, laboratories and skilled personnel.

Public hospitals often cannot meet the demand for secondary and tertiary care, so private hospitals play a crucial role. Foreign investors and private-equity funds can bring much-needed capital, managerial expertise, technology, and the ability to expand hospital networks. However, when financial incentives become too strong, they can influence not only the price of care but also the amount of care provided.

Health care is shaped by information asymmetry – providers often know more than patients. Strong financial incentives can influence both prices and the volume of care. This highlights the need for closer scrutiny of the role of private equity and venture capital in healthcare. Corporate hospitals often compete for top specialists, advanced technology, and premium infrastructure, which can improve quality but also create a high-cost system.

Hospitals paying high salaries to senior specialists and investing in expensive equipment must eventually recover these costs through higher prices, revenue targets, and procedure-linked incentives. This can lead to a cycle of higher costs and potential medicalisation, where labs detect abnormalities, more screening leads to unnecessary follow-ups, and patients who could be treated as outpatients are admitted.

While these interventions are often necessary, a system that rewards procedures needs strong safeguards against unnecessary prescriptions, surgeries, investigations, and medications. The review of FDI rules in acquiring existing hospitals is justified. Both domestic and foreign investors can have profit motives, but foreign investment can bring valuable capacity.

The question should be about the impact of investment on the health system – does it expand capacity, improve competition, or enter underserved areas? Investors may receive concessions, tax benefits, or other public supports, but there should be enforceable obligations related to affordable beds or participation in public insurance schemes.

India should encourage greenfield investments and manufacturing while scrutinising acquisitions that reduce competition or increase the risk of excessive pricing. Price regulation can be approached cautiously – linking hospital room charges to nearby three-star hotels is an easy concept but may not solve affordability issues. Hospital rooms include nursing, infection control, and emergency support that hotels lack.

If one component of the bill is capped, hospitals might raise charges in other areas. India's experience with coronary stent price regulation shows that government intervention can reduce excessive mark-ups, but hospital care is more complex. What matters is the total cost of an episode. Package rates, transparent estimates, billing standards, and audit mechanisms are more useful than isolated caps on individual components.

Diagnosis-Related Groups (DRG) provide an established approach to payments. There are established methods for these payments, which should be considered when addressing the high cost of India's private health-care boom."