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Court’s Nudge on Hospital Charges


The Supreme Court of India, during a recent hearing of a Public Interest Litigation (PIL), instructed the central government to explore methods for overseeing the pricing of medical procedures in private hospitals. This move came in response to concerns raised by the PIL regarding the high and widely varying costs of such procedures.


GS2- Health

Mains Question:

Affordable hospital care requires health-care financing reforms that go beyond price regulations. Comment. (10 Marks, 150 Words).

The Court’s Observation:

  • The court cited the example of cataract surgeries, which cost approximately ₹10,000 in government facilities but range from ₹30,000 to ₹1,40,000 in private hospitals.
  • Referring to Rule 9 of the Clinical Establishments (Registration and Regulation) Act, 2010, which mandates that clinical establishments adhere to rates determined by the Central Government in consultation with State Governments, the court emphasized the need for regulation.
  • It proposed using the rates set by the Central Government Health Scheme as an interim measure if the government failed to establish a regulatory framework.

Healthcare Services in India:

  • In India, healthcare services are primarily provided by private entities, with prices determined by market forces.
  • However, these markets are flawed, resulting in inefficiencies and inequalities that necessitate regulatory intervention.
  • While the solution proposed by the court may oversimplify the issue, it serves as a catalyst for debate and action.

Private Healthcare Providers:

  • In an unregulated market-driven environment, healthcare providers prioritize profit by charging higher prices and potentially overproviding care (known as supplier-induced demand).
  • One potential solution, termed “yardstick competition,” involves regulatory bodies setting benchmark prices based on market observations.
  • However, this approach encounters obstacles in India due to diverse patient demographics, unreliable price data, and inadequate regulatory structures.
  • Relying solely on competition from government hospitals proves insufficient due to extended wait times, perceived service quality issues, and gaps in patient information, thus perpetuating the risk of supplier-induced demand.

Standard treatment guidelines (STGs):

  • As noted by the Court, discussions regarding pricing must commence with the establishment of a benchmark for price determination. Standard treatment guidelines (STGs) can aid in defining relevant clinical needs, the nature and extent of care required, and the costs associated with all necessary inputs.
  • STGs can help mitigate factors that lead to varying levels of care across different hospital procedures while allowing for clinical autonomy to address individual patient needs.
  • Consequently, they facilitate the valuation of healthcare resources utilized for the precise costing of multiple procedures.
  • Given the limitations of regulatory capacity, the formulation and adoption of STGs necessitate that providers’ revenues are linked to fewer payers.
  • Providers should depend on reimbursements from pooled payments, which cover a significant portion of the population with minimal out-of-pocket expenses.
  • With governmental support, payers and providers could negotiate pricing that ensures a reasonable and sustainable surplus beyond input costs.
  • However, this progress would be impeded if healthcare providers could access markets where out-of-pocket (OOP) payments serve as an alternative or supplement to reimbursement payments.
  • Several countries have achieved this challenging task through coordinated healthcare purchasing reforms, underscoring that pricing issues are systemic challenges within healthcare systems rather than merely legal or regulatory issues.

Challenges of Healthcare in India:

Implementation of Standardised Rates:

  • In India, over half of the total healthcare expenditure is covered through out-of-pocket payments, while the remainder is sourced from various publicly and privately pooled funds.
  • The private sector primarily comprises small-scale providers. Even if rates were standardized, their implementation would face uncertainty.
  • Weak implementation mechanisms hinder effective enforcement. Command-and-control regulations utilizing pecuniary measures like price caps can swiftly influence behavior by compelling compliance.
  • The suggested measures encounter significant enforcement challenges. Only 11 states and seven union territories have notified the Clinical Establishment Act, and its implementation remains weak, with scant evidence regarding its impact on affordability, care quality, and provider behavior.
  • Similar limitations in design and implementation capacity have impeded the successful adoption of the National Pharmaceutical Pricing Authority’s decision to cap prices of stents and implants since 2017, as well as various directives mandating doctors to prescribe generic medicines.
  • Standardizing rates through price caps may not effectively tackle the underlying issue of stakeholders’ misaligned incentives.
  • A comprehensive healthcare financing reform strategy, informed by thorough and continuous research on appropriate procedures for formulating and adopting Standard Treatment Guidelines (STGs), must be established.
  • Without this, actual pricing could be manipulated and justified in various ways. For instance, hospitals with lower average revenue per bed might increase their rates by claiming to offer superior care quality. Without STGs, verifying such claims objectively would be nearly impossible.

Data Limitations:

  • Data limitations also pose a challenge. Efforts by initiatives like the Pradhan Mantri Jan Arogya Yojana and the Department of Health Research to develop STGs for common conditions and adopt a comprehensive costing framework have made significant progress.
  • Additionally, endeavors are underway to establish an Indian version of Diagnostics-Related Groups (DRGs).
  • However, the insurance industry’s initiation of STGs for hospitals in 2010 faced setbacks due to insufficient participation from private hospitals, resulting in a lack of representative and accurate costing data.


This ruling presents an opportunity to develop effective processes to address a major healthcare system issue. Policies for rate standardization must be feasible, easily implemented, and adhere to established price discovery practices. Future efforts should build upon past and ongoing healthcare financing reforms, anticipate challenges, and ensure broader stakeholder involvement.

May 2024