Results and Cross-Cutting Issues
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policy choice to attract greater hospital investment in the underserved Tier 2 and Tier 3 markets, it will provide much higher margins to facilities located in Tier 2 and Tier 3 cities. These providers may be willing to deliver the same services for a far lower price. Second, flat rate-based payment mechanisms can lead to distortions if rates are unaligned with costs. Hospitals may focus on only “profitable” procedures associated with high rates. In the absence of sufficient controls, packages can still be subject to fraud through “upcoding” and “ghost patients.” Third, any variations in severity, unexpected complications, or complexity of a treatment have to be managed by the hospital within the established rates. Since the rates are not adjusted for case complexity, a longer stay resulting from comorbidity will not lead to an additional payment. The current rate structure provides a disincentive to hospitals for treating severe patients and may incentivize providers to select lowerrisk cases. Conversely, providing a higher package rate based on severity or complications may also subject the schemes to a “creep” wherein providers will try to charge the higher rates even when cases do not warrant the same. Under the current system, the price setting principle is a balanced mix of high- and low-severity, but providers would have an incentive to screen and treat low complexity cases for any given procedure. In short, patients with complications or more severe illness may be turned away from hospitals. Such behaviors are neither expressly prohibited nor monitored. Fourth, with the possible exception of AP, none of the schemes possess standardized or well-defined descriptions of the packages. The “title” is often the only clue to what comprises a package. For example, a package for cataract surgery or for enlarged prostate may not specify the method of surgery, the consumables to be used, the likely duration of stay, or the diagnostics and drugs to be provided by the hospital. This lack of definition allows considerable wiggle room for providers. Providers may use cheaper, short-lived (or even inferior and unknown quality) implants and medicines or discharge patients prematurely to minimize hospital costs and maximize the bottom line, with consequent adverse effects on patient safety and health outcomes. This is yet another provider behavior that schemes do not adequately monitor.
Package Rates and Market Prices Table 3.10 shows the large variation in rates paid for similar packages among a subset of schemes for which data are available. RSBY generally