Pricing Healthcare Services

healthcare-pricingThe pricing of services in a hospital is perhaps one of the most complex and difficult exercise undertaken by the hospital managers. Pricing is  usually a Marketing function in most industries and the final call would usually rest with the Marketing chief. However, in hospitals this seldom happens. Pricing issues are generally discussed and debated in the executive committees and the leadership teams, views are sought from senior medical leaders and usually a consensus is arrived at. l,

Many hospitals follow a ‘market based’ pricing model, which simply means they comb through the pricing policies of their competitors, get pricing data from various labs and other diagnostic centres through their referral sales teams and establish their pricing either basis a premium or a discount from their chosen competitors.

Very few hospitals have a ‘cost plus’ pricing system. Developing an accurate costing of all medical procedures is next to impossible. This is simply because the medical consumables used vary from doctor to doctor and also depend on the complexity, age and general condition of the patient. The cost is also invariably a function of the training and competence of the concerned doctors and medical staff attending on the patient. Thus the cost of a bypass surgery may vary dramatically depending on the condition of the patient, the competence of the surgeon and his team and co-morbidities like diabetes.

The calculation of a price is usually based on a ‘surgeon’s fee’. On top of this is added the cost of anaesthetic gases, the anesthetist’s fee, an OT fee and OT consumables. The surgeon’s fee is usually checked with the hospital’s surgeons and if it is Rs. X, the fee for surgery inclusive of gases, anaesthetist’s fee and the OT charges usually adds up to Rs. 2X. 

The patient on top of this is charged room rent depending on his choice of the hospital room, the cost of medicines and room/ward consumables and all diagnostics. The hospital also charges exorbitant consultant’s visiting fee every time he/she visits a patient in the hospital. (Some hospitals like Artemis cap this to a maximum of two chargeable visits). Strangely all hospitals charge a premium on all services if a patient chooses a single or higher category rooms. This simply means that if one opts for a single room one pays higher for everything, the surgeons fee, the cost of surgery and diagnostic tests. Most people do not know this and believe that the hospitals charge a premium only on room rent. Many would consider this a pernicious practice simply because a surgeon’s skill and time, which are the determinants of his fee has nothing to do with the room category a patient is in.  

Some hospitals like Max Hospitals create price bands for surgeries based on their complexity and average duration. Thus all surgeries in a particular band has the same basic surgeon’s fee. On top of it is added everything else.

Healthcare Pricing in India is still very unscientific and subjective. This is a far cry from the pricing models prevalent in the US, where ICD and other scientifically designed parameters help assess the cost of a procedure and patient billing. Health Insurance companies have been able to push through accurate and scientific billing procedures.

The need for a better system for patient billing in hospitals is acute. The government must establish a regulatory body to help fix the basic billing rules for all hospitals. The hospitals should than be allowed to price themselves as they wish keeping in mind their expenses etc. I would reckon once insurance companies gain prominence as payors, they would start dictating their terms to the hospitals.

And that would be a different story altogether.

 

Pic courtesy http://www.flickr.com

 

Advertisements

3 thoughts on “Pricing Healthcare Services

  1. Dear Mr. Anas Wajid,

    I am an MBA student interested in pursuing a career in healthcare marketing and strategy. I am also pursuing a project with a leading hospital in Gurgaon to understand the industry. I wish to have a discussion with an expert in this industry to gain better clarity. So, as a first step, can you please share your email ID to take this further?

    Regards.

  2. I do agree with you to have the government body to fix the billing rules for the hospitals. This would also help in a way to control pricing policy, which actually varies from hospital to hospital certainly not on the basis of quality care, but on the basis of profit numbers which hospitals needs to make. I would go one step further to have the government to fix the pricing of the hospitals and this should be on the following basis:

    • The quality of care that hospital is going to provide – though its very subjective can not be quantified but should have some standard measures to put this in place.

    • Advanced technological investment

    • Scope of research work for the betterment of the patients and industry

    • To have the regulated pricing keeping the health insurance in a view so that it is win –win situation for hospitals and health insurance companies.

    I know this may be difficult for lot of hospitals to accept it because of the kind of investment which hospitals are making to stand out themselves from the rest. But the fact remain that in times to come health insurance is going to control maximum earning of the hospitals if not profit, so we can not ignore this and it will be than actually testing time for the strategist marketing folks of the hospital to think out the box keep the hospital alive

    Yash Rawat

  3. As an insurer, it is a nightmare to know about this practice prevalent in our country. If Health Insurance is to take off and come anywhere close to the penetration levels much like in other countries, a Health Care Regulator needs to be brought in ASAP. India has a health insurance penetration of about 1.8 % of the population as compared to almost 80% in US, one wonders how and when the leap with happen.
    Here are some pointers that the powers that be can implement:

    1. (Cashless )Insurance be allowed only in hospitals who meet certain quality norms and pricing criteria
    2. Health Regulator with appropriate powers be brought in, much like SEBI / IRDA to bring about much needed regulations include those on pricing and quality of drugs & health care services, implementation of clinical protocols, setting up and reporting / recording of key clinical guidelines / parameters.
    3. Streamlining and a more effective regulation on medico legal issues

    For long there has been a demand for such issues to be resolved but the dynamics in the industry seem to be working in multiple directions not allowing a favourable balance to set in.
    Hospitals much as Artemis and Max Healthcare, despite of huge investments in technology and skills, continue to be fighting for patients on the same turf as others without that vision.

    Here’s hoping that things will change and fast.

    Deepak Mendiratta

Leave a Reply

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

WordPress.com Logo

You are commenting using your WordPress.com 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