How opaque healthcare pricing burdens patients in India

The absolutist definition of quality is that quality is conformance to requirements, and not goodness. If we go by this definition, the healthcare quality should be judged by the patient’s health and welfare, regardless of the cost of care. An individualised definition on the contrary, accepts cost to the patient as a requirement to justify quality.

Whichever definition one chooses to apply, the fact remains that when healthcare costs become exorbitant, this places a huge burden on the public, particularly in developing countries like ours, where out-of-pocket expenditure (OPPE) out of total health expenditure is about 38%, amongst the highest in the world. This means that 38 paise of each rupee being spent on health comes from individuals’ pockets or small savings, consequently depleting the the hard-earned income and savings of most of the low and middle social class sections of society. The recent Niti Aayog report confirms this: 7% of India’s population—about 100 million people—are pushed into poverty every year due to the amount of money they spend on health.

It is not difficult for anyone to understand that if the government expenditure on health remains low, the OPPE will surge, and a single occurrence of serious illness can potentially place a lower or middle-class family on the brink of starvation. Some may be able to sustain themselves or improve their finances, depending on their income and support network. Though several reports and committees since India’s independence have suggested that the health budget as a percentage of GDP has to rise, it still stands at 1.3% — one of the lowest in the world.

Quality vs. cost

Quality of healthcare, unlike that of other products and services, in general, cannot be adjusted or modified according to the purchasing power, income levels or other socio-economic considerations of patients. However, some models on adjustable and differential costs exist: charitable hospitals, for instance, follow differential pricing to benefit low-income patients with free treatment or concessional rates while competitively charging high-income patients. This form of differential pricing, however, can only become effective if no compromise is made on quality for consultation, diagnosis, medical procedures, treatment and medicines. Good outcomes are life years saved (LYS) and quality-adjusted life years (QALYs) gained, not the false ‘savings’ from cost shifting and restricted services.

Price practices and policies

Pricing in hospitals is either a puzzle or a blind spot. It is important for the public to know what the pricing mechanism is, by which a hospital attempts to specify an exchange of health benefits to a patient with money that also ensures the a fair return of profit.

Pricing can be set in several different ways. Cost-based pricing, value-based pricing, and competition-based pricing are three methods commonly followed. Cost-based pricing takes a hospital’s total costs to treat a patient, and uses that figure as a base on which to compute some margin that the hospital would receive. This margin, otherwise called as markup, determines, in addition to total cost, how costly the medical treatment is to a patient. Competition-based pricing may be a panacea for patients provided there is no collusion among hospitals in fixing margins. If honesty prevails, cost-based pricing and competition-based pricing would benefit patients who could receive quality medical treatment at affordable costs. Value-based pricing is a mystery, unless patients are aware of the value created by extra benefits, service offers, and privileges fuelled by the patient’s willingness to pay the price for those “extras”. In addition, patients and hospitals should be mutually agreed upon other services bearing additional costs.

Variance in healthcare pricing also depends on the mode of payment. This ranges from out-of-pocket and insurance, which can be government or private, and that leads to pricing often being subjective. Pricing can also be driven by the nature of the hospital’s financing—it’s own capital, loans, donations, venture capital funding, or the stock market.

Indian hospitals operate in a highly competitive oligopolistic market. Most expensive medical conditions such cancer, heart surgeries, traffic injuries, organ transplantation, and other surgeries are of high risk, with only a few hospitals relative to the increasing number of patients in the country. . Taking cancer as just one example: the National Cancer Registry Programme Report 2020 jointly released by the Indian Council of Medical Research (ICMR) and National Centre for Disease Informatics & Research (NCDIR), Bengaluru, indicates that 13.0 lakh cancer cases were reported in 2020 and this was projected to increase to 15.7 lakhs in 2025. The average medical cost for cancer treatment is around between ₹10 lakh to ₹15 lakh. The question is, how many hospitals exist, or how many voluntarily serve the poor at low costs.

Ambience and advertising

Of late, a new trend has emerged in which hospitals engage in brutal competition and spend huge amounts of money on: advertisements and ambience. This inevitably results in surging healthcare costs and pricing, leaving patients over-burdened. The Professional Conduct and Ethics Regulations 2002, under the Indian Medical Council Act of 1956, prohibit physicians from engaging in self-promotional advertising. These norms also prohibit “boast of cases, operations, cures or remedies or permit the publication of report thereof through any mode”. However, when these norms apply heavily only on doctors, it leaves corporate entities scot-free. Corporate hospitals’ intention to maximise their revenues by increasing footfalls is natural, and cannot be blamed from a marketing perspective, but transferring advertising costs to patients should not be accepted: they must meet patients’ expected service quality without ignoring their primary expectation of “responsible price”.

Healthcare is an essential service. Many can’t afford to enjoy extravaganza or flamboyance while receiving medical treatment. A win-win situation for hospitals and patients can only be achieved if the attitude of investors in healthcare shifts to the reality of patients’ expectations rather than extended services that only obligates patients to shell out more. Research indicates that the only mechanism to reduce costs in healthcare is to improve health outcomes: in a value-based approach, achieving and maintaining good health is innately less costly than dealing with poor health. For this to happen, there has to be willingness and commitment from the government to increase the health budget in order to bring about meaningful change.

(Prof. Selvam Jesiah is a professor of management at Sri Ramachandra Institute of Higher Education and Research Chennai. sjesiah@gmail.com)

Published – February 22, 2026 08:46 pm IST