The Role of ‘Referral Fee’ in Healthcare Marketing

Referral Fee has always been one of the most controversial issue in the Marketing of Healthcare Services in India.

Large tertiary care hospitals derive much of their revenue from patients who are admitted in the hospital. The revenue comes from the room rent (that the hospital charges from the patients), the surgical fee, the anaesthetist’s fee, the Operating room charges, the investigations that the patients need during their stay in the hospital and the medicines and other sundry consumables that are used by the patients.

Patients who need admission rarely walk into the hospital requesting admission. They generally come through the Emergency Room (the ER) or are referred by their family physicians or other specialists who practice outside the hospital. Many a times patients are also referred by smaller secondary care hospitals or nursing homes.   

Quite often the large tertiary care hospitals find themselves wooing these individual family physicians, specialists and smaller nursing homes. The wooing may take the form of a well defined relationship program, which may entail engaging the referring doctors by offering them ‘visiting rights’, free passes for CME’s (Continuing Medical Education Programs), junkets abroad mostly in the guise of International Conferences, subscription to prestigious medical journals (usually quite expensive) and lavish dinners and entertainment.

More often than not the hospitals today offer a cash payout to these doctors usually a percentage of the bill the referred patient runs up in the hospital. This payout is called the ‘referral fee’.

The referral fee is looked down upon by most hospitals. In my conversation with senior doctors and sundry hospital CEO’s I have always noticed the sneering tone in which the ‘other’ hospitals are always derided for its questionable practices. It is always like ‘everyone does it except us’. I have had the occasion to sit in meetings after meetings (usually of start up hospitals) where hospital policy is enunciated in high falutin language and the referral fee is trashed as an ‘unethical practice’, which our hospital will never resort to. Usually 6 months or less into operations the reality of referral fee raises its head and suddenly it becomes alright to pay, mostly because the other hospital across the city does it all the time.

The CEO who had almost sacked the Sales Head for suggesting Referral Fee as an option for driving sales is discreetly instructed to figur out a way to offer the fee to referring doctors. Issues regarding keeping a track of ‘referred patients’ and their bills , the network of doctors to be paid off and the exact mechanism of the payoff are discussed and finalised. The money begins to flow. All this is of course very hush hush and in public the stance always is that we have nothing to do with such reprehensible practices.

The question that really begs an  answer is whether this practice is really as obnoxious as it is made out to be?

Let us examine this issue from the customer’s perspective. I as a customer would trust my family doctor to refer me to a hospital, which he thinks will provide me the best care. To send me to any other place for commercial or any other reason is clearly wrong. By doing so my family physician breaches my trust.

However, will I still object if my doctor refers me to a hospital, which he genuinely feels is the best for me and also gets paid for it? I would probably be not bothered about this kind of financial arrangement between my family physcian and the hospital.

Now if the hospital was to offer me a discount, which is equivalent to the doctor’s commission, will I still not object. Will I be okay if the hospital was to inflate its pricing by 10%, which is supposed to be paid to my doctor. The answer would be a most emphatic NO. Why should I end up paying a heftier hospital bill just because my family doctor sent me to the right hospital?

How can one be sure that a Family Physician will not end up sending a patient to a hospital, which pays him the most? It is mostly upto his conscience. The referral fee will be an inducement for at least some doctors to refer patients to a hospital, which may really not be best for him. This unfortunately my friends in the world of medicine vehemently deny. Unfortunately as long as the perinicious system of referral fee remains there is no way of ensuring that a patient will not deliberately be referred to a hospital, which may not be the best for him.

Thus I believe that the Referral Fee should not have any place in the practice of medicine. Hospitals succumbing to this practice because of pressure for early profits from their stakeholders must stand firm.The healthcare industry needs to self regulate. Maybe the government should set up a regulatory body with real powers to check and discourage these practices.

 As far as patients are concerned they must encourage their family physicians to offer them choices, check out the referred doctor’s credentials and the infrastructure available at the referred hospital. Blind trust in the matter of ones health can turn out to be quite perilous.

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