Hospitals mark up devices 10–30x, sparking push for tighter regulation

Mounting evidence of steep mark-ups on medical devices fuels calls for urgent regulation to protect patients from spiralling hospital bills.

In Short

• AiMeD says consumables and implants often form the heaviest hospital expenses
• Stakeholders want stronger enforcement of the Clinical Establishments Act, 2010
• A 2020 NPPA probe had found some consumable margins exceeded 1700 percent

Imported heart valves – often needed by people with life-threatening conditions when their heart cannot pump blood adequately – cost about Rs 4 lakh, but private hospitals charge Rs 26 lakh for the same.

Similarly, imported pacemakers cost about Rs 25,000 but are sold to patients for up to Rs 2 lakh.

These are some stark examples of hospitals – mostly corporate ones – making huge profit margins at the cost of patients, and have become a trigger point for a wide range of stakeholders, including device makers, to demand government intervention.

A number of stakeholders, including medical device makers, their associations, patient rights advocates and consumer protection activists, have now joined hands to push the Union government to frame laws that can reduce the huge financial burden on patients during hospitalisation.

A presentation made by AiMeD – an association of Indian medical device makers – which has since been sent to the Union health ministry, says that hospitals often charge 10–30 times the cost of consumables and devices compared to their real costs.

Medicines, consumables and implants used in many procedures often make up the bulkiest part of hospital bills.

Talking to India Today, many participants in a meeting last week said that healthcare was becoming more expensive in India by the day – and that the government cannot and should not look away.

“What we are pressing for is enforcement of the Clinical Establishment Act 2010, which promised legislation to standardise and monitor hospitals across India but is yet to be adopted anywhere in the country,” said Bejon Misra, founder of Patient Safety & Access Initiative of India Foundation and a consumer rights activist.

Hospitals should be made accountable and responsible, he said- adding that a profit in return of the investment made was still acceptable, but not profiteering.

The Clinical Establishments (Registration and Regulation) Act, 2010, has been adopted by 19 states and Union Territories but is yet to be implemented effectively.

There is hardly any official account of profiteering by hospitals in India, but a 2020 investigation by the National Pharmaceutical Pricing Authority (NPPA) – the only such exercise so far – based on the study of bills of four patients admitted to different corporate hospitals in Delhi-NCR who later died, had shown that profit margins on some consumables exceeded a staggering 1,700 per cent in some cases.

“In my view, importers and hospitals are playing a game where each one is making huge profit margins, while the government is just bothered about collecting taxes – and the patients are being taken for a ride,” Misra said.

Recently, in a meeting with the country's Insurance Regulatory and Devlopment Authority (IRDAI), the representatives of hospitals were also pulled up for arbitrary billing.

HOSPITALS GAIN MOST

The AiMeD presentation, seen by India Today, says that in hospitals, patients cannot bargain or choose devices – it is the provider who makes decisions, often guided by profit margins.

Apart from the examples of heart valves and pacemakers, the presentation also highlights syringes – which, despite a factory price as low as Rs 3, can be charged at Rs 30 per item. Similarly, an intravenous cannula with a factory price of Rs 6 can be billed at up to Rs 120 per item.

For this reason, AiMeD forum coordinator Rajiv Nath argued that the government should fix the import landed price or ex-factory price as the base price for consumables and devices.

“On this price, even if a profit margin of 50 percent is fixed for hospitals and maximum retail prices (MRPs) are set accordingly, it won't be as exorbitantly high as it is currently,” Nath said.

The current system allows suppliers to sell devices and consumables with artificially inflated MRPs while offering them at low cost to hospitals, which, it turns out, are the biggest beneficiaries in the supply chain.

If the goal is to protect patients from being over billed, the answer lies not in regulating what manufacturers or distributors charge – it lies in regulating what hospitals bill," said Rajesh Sawhney, a senior member of the Surgical Manufacturers’ & Traders Association.

According to him, the MRP is being weaponised not at the factory gate, but at hospital billing counters.

Talking to India Today, Dr Alexander Thomas, founder and patron of the Association of Healthcare Providers of India (AHPI), agreed that any decision in this regard should primarily serve patients’ interests.

“However, hospitals should also be able to sustain their operations. As far as I understand, most hospitals only keep a margin of 20–25 percent on medicines, consumables and devices, and our members have only reasonable profit margins,” Dr Thomas said.

AHPI is the largest network of private hospitals in India and includes almost all corporate hospitals in the country.

Many stakeholders, however, underlined that existing practices also lead to high financial loads for governments, as under schemes like the Central Government Health Scheme (CGHS), cost of treatment in these hospitals for government employees and pensioners is reimbursed.

Corporate hospitals across India have been lobbying against a Union health ministry directive issued last year mandating purchase invoices for medicines to approve claims under the CGHS.

TMR vs TMU DEBATE

Currently, some critical devices – coronary stents, orthopaedic implants, condoms and intrauterine devices – are already under price control, with ceiling prices fixed.

Margin caps have also been set on six essential devices: oxygen concentrators, pulse oximeters, blood pressure monitors, nebulisers, digital thermometers and glucometers.

Additionally, the government is trying to bring intraocular lenses, dialysis fluids and artificial heart valves under price control. AiMeD says that stent and knee implant caps reduced prices by 70 percent for patients and have been success stories.

The industry is now pitching for trade mark-up (TMU), where a retailer adds a percentage to the cost of a product to determine its selling price, or trade margin rationalisation (TMR), where the government caps profit margins allowed for intermediaries in the supply chain to ensure affordability.

In fact, Nath said it may be better to run two pilots in parallel to assess which model works better.

The broader consensus, sources say, is that the gap between hospital procurement cost and patient billing is where patients are most harmed.

“Mandatory disclosure of device procurement prices in hospital bills, enforceable caps on hospital mark-ups over procurement cost, and stronger NPPA monitoring of hospital billing practices – these are the interventions that will actually move the needle for patients,” said Sawhney.

- Ends