Hospitals ‘overcharging’ is a malpractice: Govt to Supreme Court

The malpractice is hospital overcharging. The government told the Supreme Court that hospitals may exploit patients’ weak bargaining position by charging high prices for medicines and medical consumables. This matters because patients often cannot delay treatment or negotiate during serious illness.

The affidavit says hospitals may choose medicines from manufacturers offering the highest trade margin. They then sell those medicines to patients at the printed MRP. For anti-cancer drugs, the margin can range from 170% to 700% or more. Consumables can carry margins of 100% to 1000% or more.

The government said it was aware of the problem, examining it, and developing interventions with stakeholders. It also noted that government schemes and insurance usually include supplies in package rates, but direct-paying patients may receive separate bills at MRP. That difference leaves cash-paying patients especially exposed.

MRP means maximum retail price, the printed price at which a product may be sold to consumers. A trade margin is the difference between a seller’s purchase cost and selling price. A price ceiling is a government-set maximum price. These terms matter because the final bill depends not only on manufacturing cost, but also on margins and where the medicine is purchased.

The affidavit says hospitals may buy medicines from manufacturers offering the highest trade margins. They can then charge patients the medicine’s MRP. For example, anti-cancer drug margins may range from 170% to 700% or more. A ceiling price limits the permitted price for covered medicines, while retail prices are fixed for some new drugs.

The government has fixed ceiling prices for 935 scheduled formulations and retail prices for 3,881 new drugs. However, those controls may not stop hospitals from choosing high-margin products or billing consumables separately at MRP.

Hospital markups can be extraordinarily large. The government affidavit reported margins of 170% to 700% or more for anti-cancer drugs. It reported margins of 100% to 1000% or more for hospital consumables. These figures describe the gap created through hospital purchasing and patient billing.

The key mechanism is selection and resale. Hospitals may buy medicines from manufacturers that offer the highest trade margin, rather than choosing only by the lowest purchase price. They then sell the medicines to patients at MRP. Consumables may also be purchased with high MRPs and margins, but low prices for the distributor or hospital.

The impact differs by payment arrangement. Under government schemes or insurance, supplies are ordinarily included in negotiated treatment packages. Patients paying hospitals directly may instead receive separate bills at MRP. That billing practice can turn unusually high margins into large personal expenses, especially during cancer treatment.

India has many pharmaceutical companies in each drug segment, so the drug market is described as competitive and prices are among the world’s lowest. Yet competition between manufacturers does not automatically protect a patient inside a hospital. The patient usually chooses neither the medicine nor the seller freely.

The government identified two linked problems: patients know little about medicines, substitutes, and prices, and they have very weak bargaining power against hospitals. Hospitals may buy products from manufacturers offering the highest trade margins. They can then bill patients at MRP, even when the hospital’s purchase or distributor price is much lower.

This explains why low manufacturing prices may coexist with high hospital bills. Regulation is needed because healthcare involves unusual information and bargaining differences. The government is examining interventions with stakeholders, while existing controls cover specified medicines. The affidavit suggests that manufacturer competition alone cannot address hospital-level overcharging.

When medicines and supplies are billed far above purchase prices, patients pay more for the same treatment. This can make serious illness financially damaging. The affidavit cited a 2020 statement that healthcare expenditure pushed an estimated six crore families below the poverty line each year.

The article gives a clear mechanism. Hospitals may obtain medicines with high trade margins and charge patients MRP. Consumables may be bought with high MRPs and low distributor or hospital prices, then billed separately. For direct-paying patients, those added charges are not necessarily absorbed into a negotiated treatment package.

The burden is especially serious during cancer care or major procedures, when many medicines and supplies may be needed. Government schemes and insurance negotiate package rates and ordinarily include supplies. Patients outside those arrangements may face the full separate billing. The government’s examination of interventions matters because the problem can turn treatment costs into severe household financial pressure.

The government has taken several medicine-pricing steps. It said ceiling prices were fixed for 935 scheduled formulations, and retail prices were fixed for 3,881 new drugs. These measures set limits or official prices for covered medicines. The affidavit also said the government was examining the wider problem and developing interventions with stakeholders.

Controls may not fully prevent overcharging inside hospitals because the problem is not only the manufacturer’s price. Hospitals may choose medicines from companies offering the highest trade margin, then sell them to patients at MRP. Consumables create another gap. They may carry high MRPs and margins, while direct-paying patients are billed separately.

Thus, regulated prices for some medicines do not automatically regulate every hospital purchase or bill. Package rates under government schemes and insurance are negotiated, but patients paying hospitals directly may be outside that protection. Further intervention would need to address hospital purchasing, margins, and billing practices, not just medicine ceilings.

Information and bargaining asymmetry describes an unequal relationship. Hospitals, doctors, and pharmacies generally know more about medicines, substitutes, and prices than patients. Patients also have less power to negotiate the bill. The government said these differences create opportunities for malpractice even in a competitive drug market.

The problem is especially sharp during treatment. A patient may not know whether another medicine works, what it costs, or whether a hospital’s chosen product is necessary. The affidavit says patients have a very low bargaining position vis-a-vis hospitals. Hospitals may therefore select products offering high trade margins and charge patients MRP.

This asymmetry helps explain why manufacturer competition alone is insufficient. Patients cannot easily compare every product while receiving care. The government therefore said regulation is needed, despite India having many pharmaceutical companies and relatively low drug prices. Price controls and future interventions must account for the hospital-patient relationship as well as manufacturer competition.