Understanding How Markets & State Action Shape Costs & Prices of Healthcare in Post-globalization India: A Study of High-end Imaging Services in Kerala

1. Understanding How Markets &
State Action Shape Costs &
Prices of Healthcare in
Post-globalization India: A Study of
High-end Imaging Services in Kerala
PRESENTED BY:-
Dr. REVATHY RAJU B
Amrita Institute of Medical Sciences, Kochi
AUTHORS:-
John Varghese Thekkekara
Sundararaman Thiagarajan
PUBLISHED:-
Journal of Health Management
21(3) 394–405, 2019

2. ABSTRACT
• Globalization of health care is a multi-billion-dollar phenomenon, associated with economic, political, cultural,
social and environmental aspects.
• Healthcare is one of India’s largest sectors in terms of revenue and employment and is expanding rapidly.
• The private sector accounts for more than 80% of total healthcare spending within India.
• So, globalization has pressurized the developing nation like India to open their health sector for profit-driven
private investors, both domestic as well as international.
• India which is a private sector dominant unregulated healthcare market, the service providers are free to determine
the fees for services.
• The Government of India shifted the strategic purchasing of services from the private sector and made regulation of
prices in private healthcare markets. So a better understanding of the cost of services and its relationship to prices is
essential.

3. ABSTRACT
• Bottom-up micro-costing method which is the gold standard in hospital costing is used in this study to
estimate the cost of 3 services:-
1. CT scan
2. MRI scan 3 districts of Kerala
3. Cath-Lab
• A comparison with the per capita income of the population is also attempted to analyse the contextual
differences in costs and prices.

4. INTRODUCTION
• The Alma-Ata Declaration of 1978 emerged as a major milestone of the 20th century in the field of public health
and it declared primary health care (PHC) as the key to the attainment of the goal of “Health for All” by the year
2000.
• So, the changes in the economic policy ran counter to the vision of Alma-Ata Declaration.
• In the new economic order which emerged towards the end of the 20th century, structural adjustment policies were
imposed on nation-states and health sector reforms was an important component.
• According to WHO, “Health sector reforms (HSR) is a sustained process of fundamental change in policy and
institutional arrangements, guided by government and designed to improve the functioning and performance of
health sector and ultimately the health status of the population.”
• The health sector reforms that were introduced included the restructuring of national health agencies,
decentralization, cost-effectiveness considerations for limiting public health services, introduction of user fees,
involving private sector through contracting and franchising of private providers.
• Health Sector Reforms limited the governments role to public goods and to a very select package of other services,
selected on the basis of cost-effectiveness and leaving the rest of healthcare services to the market.

5. OBJECTIVES OF THE STUDY
• The study estimates the cost of four services that use high-end technology - CT scan, MRI and the Cath Lab-based
angiogram and angioplasty as experienced by healthcare providers in the private sector of Kerala, both for-profit
providers and not-for-profit providers.
• It makes these same estimates in districts which differ in their level of development as reflected in their average per
capita incomes.
• The outcome of this study is to help in understanding the corresponding variability in cost and prices of services
with respect to differences in rural and urban markets and the presence or absence of state provisioning in that area.
• It also provides information on the level of financial protection provided by public facilities for availing these
services as compared to market prices.

6. METHODOLOGY
• Primary data for estimating the cost of the procedures using high-end medical devices were collected from a sample
of service facilities using a pre-designed tool.
• The variety and complexity of business models and models of service delivery did not lend itself to either a simple
random sampling or stratified sampling.
• So, the authors chose to study all the consenting facilities from each of the sample districts, provided the facility
had at least one of the 3 index technologies deployed - CT scan, MRI scan and Cath-Lab.
• For selecting the districts, per capita income was identified as the factor which differentiates the districts.
• The 14 districts in Kerala were stratified into 3 groups based on per capita income for the year 2013–2014 (with
2004–2005 as the base year at constant prices).
• The 3 groups were districts with mean per capita income per year :-
1. Above Rs.70,000
2. Between Rs.60,000 - Rs.70,000
3. Below Rs.60,000

7. METHODOLOGY
• From each of these 3 strata, one district was selected randomly:-
District 1 (D1) - Above Rs.70,000,
District 2 (D2) - Between Rs.60,000 - Rs.70,000
District 3 (D3) - Below Rs.60,000
• To make standard comparisons, standard procedures were selected for study.
• So, for the Cost Analysis,
CT scan of brain (without contrast)
MRI scan of brain (without contrast)
Angiogram (elective cases)
Angioplasty (elective cases)
• The cost of guide wires, stent and balloons are excluded to standardize the procedures and make comparisons.

9. COSTING METHODOLOGY
• Bottom-up micro-costing has better accuracy for costing hospital procedures which involve use of multiple
resources.
• In this approach, the cost of a scan or procedure is estimated by adding up the estimated cost of all contributing
items per scan/procedure.
• Cost of a scan/procedure is composed of the machine cost, doctor’s consultation cost, support staff service cost,
building cost, maintenance cost, insurance cost (if any), information technology cost (computers, internet, etc.),
furniture cost, laundry cost, stationery cost, power cost and house-keeping cost.
• To arrive at a standard cost, the cost of additional items used in various procedures such as contrast solutions,
films, balloons, wires, stent and medicines are not included.

10. COSTING METHODOLOGY
• So, the cost of a scan can be expressed as follows:-
Cost per scan=Ms+D+S+B+M +Ins+IT+F+L+St+P+H
Ms - Machine Cost Per Scan F - Furniture Costs
D - Doctor Cost Per Scan L - Laundry Costs
B - Building Cost Per Scan St - Stationary Costs
M - Maintenance Cost of Machine P - Power Costs
Ins - Insurance Costs H - House-keeping Costs
IT - IT Costs

11. FINDINGS

12. FINDINGS
• The estimated costs of services are not uniform across the 3 districts and the surveyed providers.
• The districts with low per capita income show a higher cost of services delivered.
• The expenses on doctors and skilled support staff were higher in the low-income districts (D3 and D2).
• There is considerable difference in the costs of services between the lowest per capita income district (D3) and the
other two.
• The difference between lowest cost of services in the highest per capita income district (D1) and the moderate per
capita income district (D2) is not much significant except in the case of angiogram.
• The lowest cost of brain CT scan in D3 is double or more than that in D2 and D1.
• Contrary to the increase in average cost of services in districts with lower per capita income, the price for services
increases as the district per capita income increases.
• The highest price for services using the selected 3 high-end medical devices is found in district 1 with highest per
capita income.
• In each of these locations, there are facilities which offer services at a price less than their estimated cost which
could be for strategic reasons including charity or due to varying efficiencies.

13. PRICE IN PUBLIC SECTOR
• The price for the selected services in the public sector was obtained under the provision of Right To Information
(RTI) Act.
• Among the 3 districts under the study, two (district 1 and district 3) have no public hospitals providing these
services.
• So, the neighbouring districts which have public facilities, with imaging services, which also have an ease of access
for the population of these districts.
• Prices at which services offered in these public facilities of neighbouring districts are collected and tabulated.
• A comparison of the lowest price at which services are offered by the public and private facilities in the 3 districts
and its relationship to costs of production of these services in the private sector makes the study interesting.
• Out of the 3 districts, only in District 2 there is a public provider of these services within the district.
• In the other two, they were in neighbouring districts.
• In District 2, the presence of a government provider may be one reason why the prices in the private sector are low.

14. PRICE IN PUBLIC SECTOR

15. COMPARISON OF PRICES IN
PUBLIC & PRIVATE FACILITIES
• In District 1 - the high income district the median market price is over twice the government price for CT scan,
angiogram and angioplasty and provides good profit margins. It is the same from MRI scan also.
DISTRICT 1 PRICE IN GOVERNMENT
FACILITIES
MEDIAN MARKET PRICE
IN PRIVATE FACILITIES
CT BRAIN SCAN Rs.1,100 Rs.2,500
MRI BRAIN SCAN Rs.3,500 Rs.3,500
ANGIOGRAM Rs.5,000 Rs.12,000
ANGIOPLASTY Rs.10,000 Rs.30,000

16. COMPARISON OF PRICES IN
PUBLIC & PRIVATE FACILITIES
• In District 2, the median market price is the same as government price for CT scan and near it for angiogram but
much higher for angioplasty.
DISTRICT 2 PRICE IN GOVERNMENT
FACILITIES
MEDIAN MARKET PRICE
IN PRIVATE FACILITIES
CT BRAIN SCAN Rs.800 Rs.800
MRI BRAIN SCAN NO FACILITY Rs.3,500
ANGIOGRAM Rs.5,000 Rs.6,000
ANGIOPLASTY Rs.9,000 Rs.25,000

17. COMPARISON OF PRICES IN
PUBLIC & PRIVATE FACILITIES
• The median market price for CT is however less than the median and lowest cost of production for CT and for
angiogram it is above it and for MRI where there is no government provider and for angioplasty despite a
government provider.
• For angiogram, the median cost is lower than the median cost of production of the service, though it is higher than
the lowest.

18. COMPARISON OF PRICES IN
PUBLIC & PRIVATE FACILITIES
• In District 3, the median market price is marginally higher than the government price for CT and well above it for
angioplasty: about the same for MRI scan and lower for angiogram.
DISTRICT 3 PRICE IN GOVERNMENT
FACILITIES
MEDIAN MARKET PRICE
IN PRIVATE FACILITIES
CT BRAIN SCAN Rs.600 Rs.800
MRI BRAIN SCAN Rs.2,250 Rs.2,200
ANGIOGRAM Rs.5,000 Rs.4,000
ANGIOPLASTY Rs.10,000 Rs.25,000

19. COMPARISON OF PRICES IN
PUBLIC & PRIVATE FACILITIES
• The median market price is however much more than even the lowest cost of production of the services for CT scan
and angiogram and more than the median cost for angiograms.
• In angioplasty, however there is a good profit. There are only two private sector units that operate the entire range
of services.

20. CONCLUSION
• Using the bottom-up micro-costing method, the lowest estimated cost of service in private sector for a brain CT scan, MRI scan
of the brain, angiogram and angioplasty in Kerala was calculated. The median cost for the same services was also calculated.
• The costs of providing services are lower in the higher per capita income district, but the price for services is higher.
• The market price appears to be governed by what price the market can bear, rather than the costs of care.
• The larger competition in these locations is not driving down costs towards the costs of care.
• In one district where there is a public provider within the district, private sector facilities are offering CT scan and MRI scan for
a price at par with the public players and it could be that the setting of prices in the public sector is related to the costs of care in
the private also.
• It could also be that the government defines its prices based on what the market is charging, so as not to under-cut it.
• In the public facilities, free services are being offered to the patients below poverty line; however, it is not clear what proportion
of the population and what proportion of the poor actually avail this subsidy. The charges in public services are highest for
angiogram and angioplasty, though still less than the median in the private sector.
• The range of prices and costs within the private sector is high, and though as a rule the median costs in private providers are
higher, for some services private sector players offer a lower rate than the costs of production of these services. A few private
providers are more affordable than the public hospitals.

21. CONCLUSION
• Two conclusions emerge.
• 1st, prices do not relate to costs and larger competition and better technologies do not reduce costs.
• What form of price regulation would work is an open question, but clearly there is a need for this.
• 2nd, availability and ease of access to services in public facilities could contribute to controlling prices in
certain contexts, and this needs to be explored further.
• There is a big skew between number of services providers in the high-income, more urbanized districts as
compared to more rural and less-income districts.
• Urban markets provide ample scope for larger profit margins leading to a greater concentration of service
providers and the potential for supply-driven care consumption, whilst the rural markets need to be assisted
by the state to assure adequate access to services.

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24. Thank You !