value, price and ethics
Posted by Dheeraj Kattula on April 26, 2009
A patient called us ‘dacoits’, a well meaning staff informed me. It is unthinkable for a team like ours, who chose to work for the poor to be perceived as a dacoits. That too by a patient!
Why did that happen? The patient was ‘educated’ in the sense that he looked at maximum retail price (MRP) of drugs that we had issued and drug charges billed to him. There was a small discrepancy, which to him looked like daylight dacoity.
We buy drugs from good generic manufacturers like CMSI, LOCOST etc.We incur much higher costs of ordering, transport and stocking these generic medicines than brand ones. The brand suppliers call up to take orders, pay for the transport and at times give discounts also.
The generic ones do not offer these, so our costs are higher and margins lower. The MRP on their labels is less than break-even price for us. So I charge little higher than MRP. I believe it is right to do so. Even if I was a consumer I would have preferred this to buying branded medicines in pharmacies outside.
Why do we continue to use generics despite certain logistic difficulties?Let me illustrate with two drugs commonly used by psychiatrists.
It is far cheaper for the consumer to use generics. It is loss making for the hospitals, considering their other costs. So I use generic medicines for patients sake. When one sees the difference between the hospital’s price of generic medicine, which exceeds its MRP, one might conclude robbery in broad daylight. Asymmetry of information would never let him know that for few medicines, he has paid just about 5% of the market price!
One of my own staffs questioned me if charging more than MRP to cover costs is ethical! I think it is, if I want to deliver value to maximum number of patients by reducing their overall health-care expenditure. Look at the other option of stocking brand drugs, we will have profits but would alienate many poor due to high costs.
I can choose to do what looks good to others and what is easier for me. But then, I might end up harming many more people (especially the poor) than the few (in general middle class and the rich), who get dissatisfied with this way of charging. What do you think?
Shrink's Views 
Swarna Rao said
Your argument sounds fine.Why do you not charge according to MRP and then add an extra charge under a different head for your additional expenses like transport, communication etc?
I appreciate your team’s desire to reach out to the poor. I wish you all the very best.
God bless..
Dheeraj Kattula said
Thank you for your kind advice.
We have had a head like that called ‘hospital charge’. This was based on the duration till the next review.For example a patient who is started on medicine for malaria is likely to be reviewed in three days. He would pay a less ‘hospital charge’ than an epileptic patient who takes medicines for thee months as he is maintaining well on a stable dose.
The logic is you pay lesser if you are coming more frequently, you pay more if you visit less frequently as hospital anyway is being responsible for you by maintaining its services. This hospital charge was to cover for the overheads of support services.
In a small town like Baripada, where there is no hospital which has systematic medical records for its OP patients, many were not happy with this head. So, it was removed. If you add that head to the consultation fee, then it would be perceived as ‘too high’.
Pricing of services is always a challenge. We would always have cynics, who according to Oscar Wilde know the price of every thing and value of nothing. Usually Pricing of services takes 3 things into account.
1.Cost
2.Competition
3.Value to the customer
The problem here is lack of perception of the hospital cost despite good performance in competition and value addition to the customer.
Do express your views 🙂