Even 1,500 gloves, 616 syringes, 11 bottles of human albumin and a bill of nearly Rs 16 lakh for a fortnight in the paediatric ICU at Fortis Gurugram could not save seven-year-old Adya Singh from dengue shock syndrome in mid- September."When Adya was here, kids would be playing till late. Now, it's like the life of our society has been taken away with her," said her mother, Deepti, trembling as she held back tears. The white lights and cameras that television news channels had been glaring at her at the open-air basketball court in her Dwarka society were finally packed up and the reporters that came with them, gone.Suddenly the silence became unsparing.Around the time that Adya breathed her last, a rare dengue-linked syndrome also claimed a 34-year star banker and ET 40 under 40 winner within a week of hospitalisation in a leading suburban Mumbai private trust-led hospital, known for its celebrity Bollywood and business patients. In retrospect, even as the doctors have confessed, in private to the family, that there was possibly an error of judgment on their part, but such sympathy seems hollow for the parents and their two surviving daughters.The plight of the Singh family though made national headlines and triggered a Twitter takedown, forcing minister of health and family welfare JP Nadda to come out in support of the family and initiate a probe. Even the National Pharmaceutical Pricing Authority (NPPA), India's drug pricing watchdog, jumped in to demand copies of the bills and names of the medicines that Fortis administered during those grueling 15 days.What made Adya’s father, Jayant Singh, even more despondent is the stoic response from the hospital defending its stand as having followed “standard operating procedures” and justifying costs that soared by a lakh rupees every single day.The Singhs have an insurance cover of around Rs 5 lakh, says a Fortis statement.Jayant would get a text message specifying the total amount he was being billed for Adya’s treatment everyday, he said. At the same time, he alleged that he was never given a daily break-up of the expenses despite asking for the same.While the issue for the Singhs is not about the money, the entire incident has prompted the family to consider legal action against the Gurugram hospital."The way I was treated on the last day was agonizing. It was a kind of harassment," he told ET.Sounds familiar, doesn’t it?But down south in Bangalore, why were leading doctors—including renowned heart surgeon Devi Shetty, founder, Narayana Health and BS Ajaikumar, Chairman and CEO, HCG hospital—on indefinite strike just a fortnight back?Following in West Bengal's footsteps, Karnataka passed a law this month that would allow it to cap the rates of certain private healthcare services. More states may follow suit.The Karnataka Private Medical Establishments (Amendment) Act (KPMEA), 2017, first tabled in the State's legislative assembly in June, was eventually tweaked following protests by over 60,000 doctors and threats that hospitals would shut down. Despite this, some have hailed the legislation as a huge step forward in safeguarding patient rights. To others, it is a mixed bag, silent on capping prices of healthcare services in private hospitals based on a "scientific rational formula.""The fact that it (KPMEA) was passed unanimously says a lot, because all political parties joined together," said K Sujatha Rao, former Secretary, Ministry of Health and Family Welfare."For the first time, you see patient rights in the foreground of a law focussed on the private healthcare sector," added Akhila Vasan, a leader from patient's rights group Karnataka Janaarogya Chaluvali (KJC).With the scrutiny over access, quality and affordability of healthcare becoming a prime time political and policy discourse, the question of balancing public needs with commercial aspirations have completely polarised India’s $60 billion healthcare industry.The spectre of heightened government intervention—both at the Centre and state level— via price caps, legislations and vigil on a broader swathe of essential drugs, services as well medical devices are making investors equally jittery. They feel throttled by over-regulation and diminishing efficiencies.Over the last 18 months, the issue has also become political, with NDA's poll rhetoric across UP and Maharastra dominated by the drive to make cheap medicines available. The recent case in Gurugram only makes the pitch for curbs shriller and may hasten the process of a stronger government grip.“It is our duty to ensure that such incidents don’t recur, quality care and treatment is provided to persons in need and that it is provided at a fair and affordable price,” stated Preeti Sudan, the current secretary at the health ministry, in a letter urging state governments and union territories to adopt and implement the Centre's 2010 regulation to regulate the private healthcare sector."Healthcare has been neglected over decades," said a senior government official who spoke to ET on condition of anonymity. "But now there is a creative disruption in this space (through unique regulations), because there is an understanding that the health sector is more important," the person said.Data on specific components of healthcare like NPPA's reports on the "unethical" profits of hospitals and distributors on devices like stents and knee implants have shed some light on this issue. For example, in February, the Centre slashed prices of life-saving stents over 80% after it was found the devices had “unethically” high mark-ups. Essential knee implants were limited by 65% soon after, in August."The message is loud and clear to the entire industry and to hospitals that the minister, ministry and Modi government means business," union minister for chemicals and fertilizers Ananth Kumar had told ET soon after the ceiling prices of knee implants were slashed. "Loot and exploitation will not be allowed."This one step opened the floodgates, with some state drug regulators investigating the extent to which private hospitals profited through a business in which they refused to be labelled retailers."It is well established that the prices charged by private hospitals are usurious and has no link to the actual cost involved in providing services. Overcharging is often the rule than exception across all components of service delivery in the private sector," says Shaktivel Selvaraj, the director of health financing and economics at the Public Health Foundation of India (PHFI).But even Selvaraj admits it is not possible to have one price for all since quality of care and services provided differ widely pan India (see chart). Neither is there any comprehensive documentation to quantify the scale of overcharging by these private establishments.Yet, he says that ideal prices should include the cost of the service along with a defined margin.Package prices in central or State-based health insurance schemes could perhaps be reworked to "reflect reality" and help States arrive at the actual cost and margins that private facilities should charge, Selvaraj adds.India could also refer to the process followed by countries like Thailand, which has developed its rate lists "more scientifically", according to Indranil Mukhopadhyay, assistant professor at O.P. Jindal Global University (JGU) School of Public Policy.Yet, the best way to prevent the private sector from charging patients exorbitant rates would be for State governments to ensure they run viable, well-functioning government hospitals, he says.With most state governments failing to implement Clinical Establishments Act, 2010—some, even after adopting it—regulation is the only way out, argue public policy wonks."There is no sector in the country which is not regulated. If you’re playing by the rules, why should you be scared of a law?" asks Rao.Some are more militant in their outlook. “Private hospitals in most cases have been focussed on profit maximization," argues S Srinivasan of patient group All India Drug Action Network (AIDAN).But healthcare CEOs believe that the government is actually throwing the baby out with the bathwater and have made private hospitals a convenient target.“Private players are not profiteering as some seem to believe," argues Sunita Reddy, MD, Apollo Hospitals. “If we study healthcare economics in more detail, across the sector, return on capital employed (ROCE) is around 10%, which is just enough to plough back into the business."Capital investments required upfront are very high and gestation and turnaround times are high, she says, adding, "While we can always optimize on efficiencies, and will make every attempt to do so, there is not that much headroom as is widely believed to lower cost.”Today, 68% of hospitalization in urban areas and 58% in rural areas are through private establishments, according to JGU's Mukhopadhyay.Yet, instead of being an enabler, the government is morphing itself into a strict controller, feels Vishal Bali, Chairman, Medwell Ventures. Bali, previously the MD of Fortis Hospitals, says in the absence of government’s gap in providing quality care private hospitals have stepped up to fill the gap of public health system.Indeed, the industry remains highly capacity constrained, with just seven beds per 10,000 versus the global median of 27 (see graphic).The supply gap remains uneven with unmet demand outside top metros, more importantly at affordable rates. Lack of quality doctors and insurance, therefore, has made pricing truly a matter of life and death.Ashutosh Raghuvanshi, CEO of Bangalore based Narayan Health highlights that the debate on India’s low GDP spend in healthcare, fails to take in account the 80% of Indian population that pays out of pocket which, if calculated, will make GDP spending on healthcare nearly 12%. "Most big hospitals look at costs as pass throughs. But what we have been talking about is that profitability should come from efficiency and not price.”Even then, analysts feel hospitals will have to alter their business models to focus on affordable healthcare and patients outside Tier 1 cities to sustain rich valuations in the future.JGU's Mukhopadhyay, who studied the cost of care in public and private healthcare facilities in four States, says private sector hospitalisation on average costs a patient twice as much than in public facilities.“The premium segment is slowing on rising competition and narrowing supply demand gap with margins under pressure too,” wrote Piysuh Nahar and Sagar Sahu, analysts from Jefferies this August.“Government regulations on implant pricing control has impacted hospital profitability, particularly for hospitals having large cardiac exposure,” said Kaustav Ganguli, senior director at consultancy firm Alvarez and Marsal. “Over the next few months, one may not see too many large ticket M&A transactions in the hospital space.”Across the world, the debate on healthcare costs has given rise to health economists and innovation in pricing by private healthcare providers in addressing the access gap.Pharma companies are looking at different financing models like monthly installment schemes or tiered drug pricing for their expensive drugs, or value based pricing where drug companies are asking for reimbursements on the basis of the effectiveness and good outcome for patients. On the hospital side, the conversation in India is still stuck at improving the insurance coverage.“Costing of a service for hospitals is still a gray area and not fully understood. Because you are always stuck to determine what do you cost,” said Dr Usha Manjunath, Director of Bangalore based Institute of Health Management & Research.Manjunath also thinks that regulating hospital prices as some states have proposed might put the hospital chains in smaller towns out of business, which will end up denying patients required care.Ashish Jha, Director of Harvard Global Health Institute feels that the concept of the fee for service-based model itself is problematic, and what happened in the Fortis case, where the patient was charged for every single product and service, is conceptually flawed.Jha proposes a bundled pricing or the Diagnostic Related Grouping (DRG) system, which is increasingly becoming a norm in several countries. In DRG is a fixed payment amount that an insurance company pays to hospitals for a procedure. Its principal is that the costs are predetermined.The Healthcare Lawyers group define this as a statistical system which divides possible diagnoses into more than 20 major body systems and subdivides them into almost 500 groups for the purpose of Medicare reimbursement . For hospitals, here the incentive to make profits comes from the principle of efficiency. If they spend lower than the DRG, they make money and, if they go up, then it loses.“Most hospitals don’t have a good idea on what their underlying costs are, and billing practices differ from hospital to hospital for same services, this doesn’t make sense”, Jha tells ET. But he is also quick to point out that the responsibility of spending on healthcare finally rests with the government. India has to step up its public funding for health, he says, and public health experts agree."It is only when the government also offers quality that the private sector will fall in line. Most people go to private because the government hospitals are overcrowded, under-funded and compromise on quality," says Sujatha Rao.The clamour of rising healthcare costs and regulations is inevitably politically potent and even advanced economies like the United States and United Kingdom, burdened by ballooning insurance pay outs, are looking at various reforms to bring down costs.A stitch in time will indeed save nine.