Refining the provider payment system of India’s government-funded health insurance programme: an econometric analysis

OBJECTIVES: Reimbursement rates in national health insurance schemes are frequently weighted to account for differences in the costs of service provision. To determine weights for a differential case-based payment system under India’s publicly financed national health insurance scheme, the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (PM-JAY), by exploring and quantifying the influence of supply-side factors on the costs of inpatient admissions and surgical procedures. DESIGN: Exploratory analysis using regression-based cost function on data from a multisite health facility costing study—the Cost of Health Services in India (CHSI) Study. SETTING: The CHSI Study sample included 11 public sector tertiary care hospitals, 27 public sector district hospitals providing secondary care and 16 private hospitals, from 11 Indian states. PARTICIPANTS: 521 sites from 57 healthcare facilities in 11 states of India. INTERVENTIONS: Medical and surgical packages of PM-JAY. PRIMARY AND SECONDARY OUTCOME MEASURES: The cost per bed-day and cost per surgical procedure were regressed against a range of factors to be considered as weights including hospital location, presence of a teaching function and ownership. In addition, capacity utilisation, number of beds, specialist mix, state gross domestic product, State Health Index ranking and volume of patients across the sample were included as variables in the models. Given the skewed data, cost variables were log-transformed for some models. RESULTS: The estimated mean costs per inpatient bed-day and per procedure were 2307 and 10 686 Indian rupees, respectively. Teaching status, annual hospitalisation, bed size, location of hospital and average length of hospitalisation significantly determine the inpatient bed-day cost, while location of hospital and teaching status determine the procedure costs. Cost per bed-day of teaching hospitals was 38–143.4% higher than in non-teaching hospitals. Similarly, cost per bed-day was 1.3–89.7% higher in tier 1 cities, and 19.5–77.3% higher in tier 2 cities relative to tier 3 cities, respectively. Finally, cost per surgical procedure was higher by 10.6–144.6% in teaching hospitals than non-teaching hospitals; 12.9–171.7% higher in tier 1 cities; and 33.4–140.9% higher in tier 2 cities compared with tier 3 cities, respectively. CONCLUSION: Our study findings support and validate the recently introduced differential provider payment system under the PM-JAY. While our results are indicative of heterogeneity in hospital costs, other considerations of how these weights will affect coverage, quality, cost containment, as well as create incentives and disincentives for provider and consumer behaviour, and integrate with existing price mark-ups for other factors, should be considered to determine the future revisions in the differential pricing scheme.