As the country prepares for the launch of Ayushman Bharat on September 23rd, sceptics may wonder whether this time is truly different. Ayushman Bharat, or Pradhan Mantri- Jan Arogya Yojana (PM-JAY) as it is now called, will attempt to bring millions of poor Indians into a structured health insurance scheme, integrating the latest technology and coordinating between state agencies, insurance firms or state trusts, third-party administrators and thousands of public and private hospitals.
We have been here before. And the same thorny implementation issues are likely to plague Ayushman Bharat, as its predecessor, the Rashtriya Swasthya Bima Yojana (RSBY) and other state-specific insurance models.
If there was one key lesson from that experience, it was this: Even as we have become sick and tired of poor quality and services in the public sector, public funding for the private sector will be no panacea. Not because the private sector can’t perform better, but because, in addition to the old adage that the private sector behaves like the public sector in direct proportion to the subsidies it receives, health insurance brings with it its own set of special concerns.
Good medical care ensures both that the patients receive what they need and do not receive what they do not need. A functioning health insurance system therefore must ensure three different purposes: Patients are not under-treated (the hospital turns you away; doesn’t give you an expensive medicine you need) patients are not over-treated (the hospital gives you an unnecessary procedure or medicines) and patients are not over-charged (you pay more than the price of the service as determined by the insurance scheme).
Ensuring this requires massive investments in adaptive price setting, legislation, third-party monitoring, quality improvements in public sector hospitals and ultimately significant investments in skilled capacity. Increasing government involvement in these five areas will be a critical precondition for fulfilling the promise of a healthier India.
Pricing: If prices could be set such that hospitals always acted as the patient’s best advocate, many of these problems could be solved—and many of the additional issues we discuss below would not arise. But unfortunately, accurately pricing services and ensuring that government gets what it pays for is an almost impossible problem, with perhaps no efficient solution. Prices need to fulfill the dual function of ensuring “neither too much, nor too little”. But if costs for the same procedure differ across hospitals (not only due to quality, but also due to location and capacity), a single price across hospitals can never ensure that both constraints are effectively met, and in fact, it is certain that these prices will never be the “right” prices.
When the price is too low for a hospital, it will either choose not to enroll in the scheme, or it will deny services. When the price is too high, the hospital will make additional profits, or worse, try to convince patients to receive the service even when it is not needed. Reports of unnecessary hysterectomies under RSBY followed from such erroneous pricing.
The fact that a stent will be reimbursed at Rs.40,000 but a heart bypass at Rs 1.2 Lakhs immediately highlights the problem. Even if administrators can perfectly determine what operation the patient received, there is nothing stopping a hospital from choosing the operation that grants higher profits. Why stop at a stent if the bypass nets additional profits? It may be possible to setup complicated verification methods, but problems like “upcoding” (inserting a stent but coding a bypass and perhaps just outright fraud) become more likely the greater the deviation in prices from each hospital’s cost structure.
Getting prices right is the central dilemma in any insurance program and one that all countries struggle to solve. But the one thing that countries implementing large-scale programs have in common is a large analytical and data center that continuously examines procedures, procedure coding and charges from the insurance scheme. Prices have to be frequently negotiated and updated based on the data, and this is a job for specialized teams of hundreds in each state. The precondition for better pricing is state capacity.
Third-party monitoring: Given that we will never get prices exactly right (and for the first decade they may be wildly off), hospitals may both under-treat and over-charge. One of the trickiest problems in RSBY was the denial of services. In the districts where it was implemented, as highlighted in a 2017 study by Karan, Yip and Mahal, RSBY had little to no impact on financial protection for households . One (good) reason could be that people were now accessing health services for conditions that they earlier could not afford to—the impact of RSBY shows up on life, rather than on money.
But two more troubling problems are equally likely. The first is outright denial of services. In West Bengal, in a district one of us was studying, the private hospital would not honor the cards. Patients would turn up, and would be turned back. In the West Bengal case, prices for some procedures were set too low for the hospital to make a profit on these cases, and therefore it made no financial sense for hospitals to cater to these conditions. There have been other cases where patients have been turned back because hospitals were not being reimbursed for their claims on a timely basis. The second is that hospitals may increase the prices of the service and force patients to pay out-of-pocket. Subsidies to providers are shared among the provider and the consumer depending on demand and supply elasticities. If there is only one hospital in the district, the hospital knows that patients have little choice but to pay up.
The problem with denials and top-up pricing is that they do not show up in routine administrative data—the RSBY card was not used; the payment was off the books. Grievance redress and call centers may prove useful, but only if they can immediately influence the outcome for the patient. The RSBY tried to deal with this problem through stated guidelines that allowed local NGOs and partners to setup health desks in hospitals to help patients navigate the scheme and the hospital. Unfortunately, there were few takers. Crucial to the success of Ayushman Bharat therefore is the creation of an eco-system of mediators and facilitators that will serve as a link between the scheme, third party insurers and the hospital. The proposed 'Arogya Mitras' are a step in the right direction, but will require both the authority and the ability to guide patients through hospital care, perhaps in direct opposition to the hospitals’ own objectives. That they will be hired by the private hospitals themselves in several states sets up a direct conflict of interest and undermines their potential to be vigilant observers.
Regulation and Insurance Fraud: In tandem, the scheme will require dedicated teams with supporting legislation to control fraud. Ajay Shah, Ila Patnaik, Shefali Malhotra and Shubho Roy have shown that all 17 insurance ombudsman offices in India are currently vacant with a backlog of 9000 complaints. Gaps in the current regulatory framework imply that there is no established procedure for settlement of claims, redress of consumer behavior against rejection of claims or even penalties for rejecting claims in in violation of existing regulations. This in turn creates incentives for regular violation of norms by insurance companies. Not surprisingly, the complaints rate in India is orders of magnitude higher than comparable jurisdictions across the globe. The success of Ayushman Bharat is now intrinsically tied not only to the functioning of the health department, but also the criminal justice and court systems. For Ayusham Bharat to succeed, on September 23rd the Government of India must unveil not just an insurance plan but a new, stronger legislative framework for regulation and insurance fraud.
Improving Government Hospitals: Finally, there is no getting around the critical need to strengthen government hospitals. In the long run, well-functioning public hospitals will provide a much-needed backstop against predatory practices, denial of service and overcharging in the private sector. Especially in districts where competition is limited, public hospitals will limit the monopoly power of the private sector, flush with the new money from the scheme. A framework for transferring resources from the scheme to help government hospitals improve their quality is just as important as funding flows to the private sector.
Capacity: All of this with require significant investments in state capacity. As in the RSBY state governments will handle most of the implementation and this will require an interest, willingness and, above all, capacity within state governments to make massive investments in the administrative structure. Some numbers may help.
In the United States, the (largely) single-purchaser Medicare scheme employs 6000 people to cover 44 million beneficiaries. These are all highly trained administrative staff handling insurance audits, pricing and medical records; dealing with anti-trust cases and fraud and examining billing issues in each state. Consider U.P where the scheme may cover 50% of the population, or 100 million people. That would imply that the administrative staff to run a single purchaser scheme should be above 10,000. But the RSBY headquarters in UP had 42 staff including a Chief Executive Officer, Nodal officer, contractual staff and medical officers. Bihar employed about 10 full-time staff and even in southern states with a longer history running large scale health insurance programs, offices remain thinly staffed. The Tamil Nadu state office as well as, Arogyashri in Telengana employ fewer than 100 staff each. The point is simply this. Running a scheme as complex as a large-scale health insurance program requires people. To be successful, Ayushman Bharat must be prepared to make such large-scale investments in human resources at state government headquarters. Since the expertise currently does not exist (at least at this scale) we will have to develop the necessary institutions that will train these professionals.
The foundational pillars will still not ensure that patients receive the care they need, or even that they won’t emerge in a worse condition than they were when they entered. Clearly, that should be the key focus of Ayushman Bharat. But we won’t get there without first getting the institutional architecture right.
It would be a huge mistake to think that we can deliver care without improving state functioning by devolving responsibilities to the private sector. We can’t. In fact, with a scheme like Ayushman Bharat, our state capacity now needs to go far beyond the health sector to complex regulation, industry practices, the police and the courts. This is a challenge for the entire country. And it is the metric against which the Ayushman bharat should be monitored and what the government should be held accountable for.
Jishnu Das is a Senior Visiting Fellow, Centre for Policy Research. Yamini Aiyar is the President and Chief Executive, CPR. Jeffrey Hammer is formerly Charles and Marie Robertson Visiting Professor of Economic Development at the Woodrow Wilson School of Princeton University.