The Mess at CGHS

While the government has ambitions of running and efficiently managing the world’s largest public healthcare program called Ayushman Bharat, the much smaller and much older healthcare scheme meant for the employees of the Central Government is in a complete mess. The Central Government Health Scheme (CGHS) website loftily proclaims that it” is the model Health care facility provider for Central Government employees & Pensioners and is unique of its kind due to the large volume of beneficiary base, and open ended generous approach of providing health care”. It is anything but that.

CGHS is over six decades old and is run under the Ministry of Health and Family Welfare of the Government of India. It is meant to provide subsidized healthcare to government servants through a network of primary clinics, dispensaries and em-paneled hospitals, which are mostly in the private sector. The private hospitals are required to treat the CGHS beneficiaries in a cashless mode and claim reimbursements at subsidized and pre-agreed rates from the CGHS organisation. The participation of the hospitals in the scheme is voluntary.

Recently, on July 2nd, the Minister of State for Health and Family Welfare, GoI, Ashwini Choubey, stated in the Rajya Sabha (the upper house of the Indian Parliament), that the government has received some complaints regarding private hospitals em-paneled with CGHS refusing to admit the CGHS beneficiaries and that show cause notices have been issued to these hospitals and strict action is contemplated against them. As usual, the government is stating only one side of the story.

Here is the other side.

CGHS had entered into an agreement with private hospitals in 2014. The agreements were valid for 2 years. Since 2016, the CGHS organisation has been arbitrarily extending these agreements for a period of 3 months. Fresh agreements that should have been signed in 2016 have not been floated and the em-paneled hospitals just receive a communication from the CGHS organisation that the agreement is extended by 3 more months.

Interestingly, the agreements signed by the hospitals in 2014 were sent to CGHS for the signatures of CGHS officials. These have not even been returned to the hospitals. This essentially means that the hospitals do not hold with them any legally valid agreement duly signed by both the parties.

To make matters infinitely worse, the pricing that the hospitals had agreed to in 2014 for a period of 2 years remains unchanged even in 2019. Thus, the CGHS organisation has not increased the price that they pay to the hospitals in the last 5 years. The price of a consultation with a specialist is fixed at INR 150 (approx. USD 2) !!!! The hospitals’ costs of course keep going up year on year. There is no justification offered for this stasis.

If this was not bad enough, the CGHS never pays the hospitals on agreed credit period. The payments are delayed for months, while the hospitals are expected to continue treating CGHS patients without a pause. One clause in the CGHS agreement states that 60% of the bill will be reimbursed by the CGHS with-in one week of the submission of the bills. This, of course remains only on paper. The CGHS owes hundreds of crores of rupees to private hospitals in the National Capital Region of Delhi alone. Effectively, the private hospitals end up locking their working capital in treating CGHS beneficiaries.

A small industry thrives on recovering dues from the CGHS. Sundry companies offer their services to private hospitals to help get their bills cleared by the CGHS. Many hospitals employ a small army to chase their bills across the dusty desks of the CGHS mandarins. They literally move the files in the CGHS corridors, from one desk to the other and from one office to the other. All this means additional expenses for the private hospitals, just to recover their legitimate dues.

Finally, when the money arrives after a valiant effort stretching over months, the hospitals discover that their bills have not been paid in full and deductions have been made for reasons, never specified. The hospitals often make representations to the CGHS to understand the reasons for these deductions and seek the recoveries, which of course is another herculean task. Some simply do not bother and accept whatever CGHS deigns to pay them.

The genesis of the problem lies in the fact that CGHS is under-funded and monumentally inefficient. No one is actually bothered to take a broom and clean up the mess. No one has a real incentive to do that. While, perverse incentives to let things be, continue unabated.

Rather than threatening private hospitals, Minister Choubey will perhaps do well to have a look right down the corridor from his office and do something about the mess in CGHS.

The views expressed are personal and do not necessarily reflect those of my employers.

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The Politicians and Private Healthcare in India

Of late politicians of various hues have been paying a lot of attention to the private healthcare sector in the country. Sadly, most of this attention is rather unhealthy, based on their own populist electoral agenda and completely partisan. Let us look at two recent examples. We have had the Prime Minister talking about capping of stent prices and the like, while speaking some time back in London and then more recently we had the health minister of the government of Delhi announcing a slew of measures that the government plans to implement to curb ”profiteering” by the private healthcare players in the National Capital Region.

Even a casual glance at the financial results of private healthcare players in the country will establish the simple fact that far from profiteering, most of them are struggling to make a decent profit on their investments. The EBITDA margins for most of the hospitals are in the range of 7%-15% and the return on capital employed (ROCE) is mostly in single digits even after a decade of hospital operations. The investors who set up these hospitals as ”for profit” businesses, would probably be far better off if they had just chosen to keep their money idle in a bank or may be invested in some other business.

The government and the pricing authority (NPPA) tend to look at hospital profitability through a completely distorted lens. Media stories inform readers that hospitals are making jaw-dropping profit margins on things like syringes, gloves and other sundry drugs and medicines. While these items are always sold on the MRP, the hospitals have also been baselessly accused of colluding with the manufacturers of these items in inflating the prices. Even if for a moment one assumes this is true, the simple fact is that a hospital’s profitability cannot be judged from the profit margins on sundry consumable items.

The profitability of a hospital has to be established by looking at the revenue that it earns and the entire cost structure that the hospital carries. The huge upfront cost of developing hospital infrastructure, the costs of all the clinicians and the medical staff employed by the hospital, the cost of all the non-medical services (such as housekeeping, the front office and F&B) and the cost of sophisticated equipment and instruments for diagnosis and treatment of the patient forms the bulk of the hospital cost. The hospitals incur these costs right at the start of their operations and continue to make losses for several years before they can hope to break-even.

Even on the revenue side, private hospitals are required to cater to patients such as those covered under the CGHS and the ECHS schemes of the government. These patients enjoy cashless services at the point of delivery, with the government paying a subsidized amount to the private hospitals later on. This is largely because the government’s own hospitals do not have sufficient infrastructure to take care of these patients. Payments from the government are low, sporadic and endlessly delayed. These patients, however, receive the same level of medical care as any non-subsidy enjoying patient and hospitals incur the same costs.

On one hand, we as consumers continue to demand more from our healthcare service providers including better equipment, greater patient safety, higher levels of infection controls, better-trained doctors and ultimately superior patient outcomes, it seems we are willing to pay less and less for all of this. Clearly, this can not work. The hospitals have to recover these costs for them to be financially viable.

Politicians whipping up unnecessary hysteria by claiming that hospitals make huge margins on say a cotton swab and then presenting themselves as knights in shining armor out to protect the general public from the depredations of unscrupulous private sector hospitals is just playing to the galleries. It is actually the politics of the worst kind. A far better approach would be to increase healthcare expenditure and invest in creating better public healthcare infrastructure. Partnering with the private healthcare players in a fair and equitable manner would go a long way in improving healthcare services to the citizens of our country.

Private Hospitals and clinicians provide the bulk of healthcare in the country. Investors who have put their money in these businesses must not be denied a reasonable profit just because politicians have elections to fight. If the government continues with this agenda, they will end up destroying private healthcare in India.

And that truly would be a very high price for all of us to pay.

The views expressed are personal.

Rahul’s Dilemma – A Case Study

for blogRahul Jain warily walked up the stairs to the office of the Facility Director. He anticipated much of the discussion and was not sure if he had the energy to sit through another long session on how he needed to get more revenues for the hospitals. They have been having these discussions pretty much the whole of the last week and it was apparent to him that something needed to be done. Trying small quick fixes was not going to take them too far. The only question in his mind was whether he had the courage to bite the bullet. He had been dithering for a while now, but he knew that he had to bite the bullet now.

Rahul has been the sales head of the hospital for the last 6 months. He has worked his way up from the ranks and now headed the sales team. His team comprised of 10 sales people, 4 were designated as Asst. Managers and others were front line sales executives. Two of the AM’s were recent hires, hand-picked by him and the other two were older colleagues. The sales executives were mostly people who had worked at other hospitals and two were with large pharmaceutical companies. To his mind, he had a crack team. He had been trying hard to understand, why they were than under-performing as a team.

Rahul worked at a mid-size multi-speciality Hospital in Delhi. The hospital is a part of the large Fortis Group, which is widely regarded as one of the leading healthcare enterprise in the country.

Rahul walked into the office of Dr. Sudhir Sharma the Facility Director. Dr. Sharma has been the director of the hospital for just over a year. Rahul liked him for his straightforward approach. With Dr. Sharma, he knew there was never any mincing of words or sugarcoating of the pill. As Dr. Sharma waved him down in the chair opposite him, Rahul opened his laptop and sat facing Dr. Sharma.

‘Rahul, how are things?

‘Sir, things are improving. It is just that we need more time to reach to our full potential’.

‘Rahul, I know, but look at the numbers. The cash sales is tracking below par, the TPA channel is also below par, while the PSU and the government piece is ahead of the budget, which I am not sure is a good thing. We must drive our cash sales higher.’

Rahul too peered at the numbers, which in any case he now knew by heart.

Budget July 2014 (In Cr) Actual July 2014 (In Cr.) Budget YTD (in Cr.) Actual YTD (in Cr.)
Cash Sales 6.8 4.7 23.6 19.8
TPA/Pvt. Corp 3.2 2.4 12.8 10.4
PSU/Govt. 2.6 3.5 10.1 12.5
ECHS
CGHS 1.2 1.5 5.5 6.4
International Sales 2.2 1.9 8.5 8.1
Total 16.00 14.00 60.5 57.2

‘Rahul, at about 95% overall achievement in the first four months, we have been barely able to keep our heads above water, but these numbers are hiding a big problem. The Cash and TPA sales are just above 80%, which is pulling down everything and the EBITDA numbers are in a very sorry state. We can perhaps prop up the EBITDA temporarily by reducing and deferring cost, but to reach an EBITDA of 22%, I need the sales channels to fire. To make matters worse, the CGHS and the other low priced business is ahead of the budget. Rahul, we must set this right and we have no time to lose’

Rahul also looked at the speciality wise distribution of the sales numbers. He felt that in these numbers were hidden some of the answers that he was seeking.

Budget July 2014 (In Cr) Actual July 2014 (In Cr.) Budget YTD (in Cr.) Actual YTD (in Cr.)
Cardiology 2.6 2.7 9.5 10.4
Cardiac Surgery 1.6 1.7 6.5 6.9
Orthopaedics 2.8 2.1 11.1 7.9
Neuro and Spine Surgery 1.3 .85 5.8 4.6
Urology and KTP 2.3 1.8 8.5 7.9
MAS and GI Surgery 1.8 2.0 6.5 8.1
Int. Medicine 2.6 1.65 10.2 8.9
Others 1 1.2 2.4 2.5
Total 16 14.00 60.5 57.2

‘Sir, if you look at the speciality wise data, we are clearly struggling with Orthopaedics. You know the team is new and we are trying our best to get the new doctors to connect with the referring physicians, it is taking time. Our other big problem is Neuro and Spine Surgery, where we just don’t seem to be getting the traction. And our bread and butter Internal Medicine is falling off the radar because of the internal team issues. While I am hopeful, that the dengue season, which is round the corner will help improve the volumes and revenues next month, we must have a longer term solution’.

‘Leave the Internal Medicine piece to me, Rahul. You know we are working on this and should get this sorted out in a couple of weeks, tell me how are you going to ramp up ‘Orthopaedics and Neuro Surgery pieces, what do we do there. You must look at the Urology piece as well; we are struggling there as well’.

Rahul took a deep breath and started narrating the outline of a plan that had been forming in his mind.

‘Sir, we have to attack these problems from multiple angles. To do that we must understand the levers that drives various parts of the business. We must have a comprehensive plan for Orthopaedics, Neuro and Spine Surgery and Urology. Let us identify these as our core specialities that we will drive across channels’.

‘Yes, Rahul but, where is the plan and when are we starting’. Rahul realized that Dr. Sharma was really running out of patience. He soldiered on.

‘Sir, as far as Orthopaedics is concerned, let us push the doctors both in the b to c space as well as b to b space. We need to re-launch the department. The Marketing folks must come up with a plan for the b to c piece. I shall speak with Manika in Marketing today itself. They need to pay us some serious attention. On the b to b front, I am working hard with the team to increase our coverage. Currently, we are meeting 300 doctors regularly; we need to push this up to 600. The A category doctors out of this lot must be regularly met every week’.

‘Rahul, I know but do tell me what you guys tell these doctors in your meetings. Do you have a plan for each meeting?’

Rahul winced; he knew he was on slippery territory here.

‘Sir, we have very little to engage with the doctors. We need more material, engaging stuff you know, interesting case stories, technically challenging cases, some nice giveaways…we have nothing’.

‘Rahul, please get what you need, the stories must come from the hospital itself. Get Jobi, to regularly source these from the doctors. Let me know, if you get stuck.

‘Right Sir, we will similarly develop detailed plans for Neuro and Spine Surgery as well Urology and come back to you.’

‘Rahul on the channel front too, my sense is that we are drifting. Please identify the top 10-15 clients in each channel and focus there. Can you come up with a Corporate Engagement Program, which allows us to connect with the corporates in a sustainable manner?’

‘Also Rahul, look at conversions, we have 500 OPD walk-ins every-day, I would like to know how many are recommended admissions and how many actually get admitted. Can we develop a system for tracking and improving conversions?’

Dr. Sharma in the flow and Rahul did not cut him short. In his mind he was also evaluating possibilities of introducing new clinics and new branded services, developing a robust plan for community activities in the neighbourhood and working out some local promotions to drive revenues in the short term.

‘Sir, allow me to put together a clear plan and come back to you in the next couple of days’. Rahul felt excited, even happy after his interactions with Dr. Sharma. He admired the man for his drive and ability to motivate. He secretly nursed a hope of becoming the facility director one day.

‘Thanks Rahul let us see the plan and let us get this beast moving quickly’.

Rahul walked out of the room, and called for a team meeting.

This is a fictitious case study written by me for a sales training session. Happy to share it here.