Scheme patients need their own operating model

In our smaller-city hospitals, almost a third of the patients in our beds on any given night are covered by a government health-assurance scheme. The largest is Ayushman Bharat PM-JAY, which since 2018 has covered up to ₹5 lakh of hospital care a year for each eligible family, paid at package rates the scheme sets. State schemes operate alongside it. For a hospital in Chandrapur or Durg, these schemes are not a side line. They are how a large part of the district pays for cardiac surgery, dialysis, cancer treatment and childbirth.

Private hospital groups discuss these patients awkwardly. In investor meetings, scheme volumes are usually presented as a drag on revenue per bed. In internal meetings, the conversation is often about how many such patients a hospital can afford. I think both conversations start from the wrong place, and I have changed my own view on this over the past four years.

Two easy answers, and why both fail

The first easy answer is the cap. A hospital accepts scheme patients up to a share of its beds and manages the rest away, through waiting lists, through which specialities it chooses to be empanelled for, or through a polite suggestion that the patient try the government hospital. This protects the revenue-per-bed figure. It also does real harm in a district where the government hospital is already full, and it undermines the hospital's standing with the doctors who refer to it and the community it depends on for staff. A hospital that turns away its neighbours does not stay trusted for long.

The second easy answer is silent cross-subsidy. The hospital accepts every scheme patient, runs them through exactly the same pathways as everyone else, and recovers the shortfall through higher prices for privately paying and insured patients. This feels generous. In practice it conceals the cost from the board, pushes up prices for families paying out of their own pockets, and leaves the scheme work permanently loss-making, because nobody is asked to make it otherwise.

Both answers share an assumption: that a scheme patient costs the same to treat as any other, and that only the price differs. That assumption is where the work should start.

Designing for a fixed package rate

A package rate is a fixed price for a defined episode of care. The hospital's task is to deliver that episode safely at a cost the package covers, which is the discipline any well-run hospital applies to its own fixed-price packages for insured patients. It requires designing the pathway for the price, not adjusting the price to the pathway.

At Kesarvan we began in 2022 with the twenty packages that accounted for most of our scheme volume: angioplasty, dialysis, normal and caesarean deliveries, cataract surgery, chemotherapy cycles and several orthopaedic procedures. For each one our clinical leads and finance team mapped the actual pathway: days in hospital, tests ordered, consumables, theatre time and the staff involved. Where the clinical evidence allowed, we standardised. Chemotherapy moved to day-care chairs. Pre-operative tests were done before admission rather than on the first inpatient day. Length of stay for planned procedures fell, without any change in the clinical decisions themselves, which remained the treating doctors' alone. At Chandrapur the average stay after a planned angioplasty fell from 3.4 days to 2.1 between 2022–23 and 2024–25, and the package began to cover its direct cost.

Price regulation helped in one area. Coronary stents and knee implants have carried ceiling prices set by India's National Pharmaceutical Pricing Authority since 2017, which narrowed the gap between scheme packages and our cost for cardiac and joint procedures. Procurement did the rest: we buy consumables across the group and agree volumes with suppliers a year ahead.

The administrative side mattered as much as the clinical side. Scheme claims require pre-authorisation, documentation and timely submission, and errors delay payment for months. We created a dedicated scheme desk at every hospital, trained its staff to the scheme's documentation rules and reviewed rejected claims weekly. Scheme receivable days fell from 112 in 2021–22 to 64 in 2025–26.

Not every package can be made to cover its cost. Where one cannot, even after redesign, we say so to the board and continue to provide it, because we are empanelled for that speciality and our patients rely on us. The loss is reported as the cost of a commitment we chose, not hidden in someone else's bill.

What the board should see

A board cannot judge any of this if scheme work is buried in the hospital's overall margin. Each quarter our board sees four figures for every hospital in a smaller city: scheme patients' share of bed-days and of revenue, the contribution margin on scheme work after direct costs, scheme receivable days, and the share of claims rejected or reduced. In 2025–26 scheme patients accounted for 31 per cent of bed-days and 19 per cent of revenue in those hospitals, and scheme work earned a positive contribution in all but a handful of packages.

There is a commercial argument here as well, and I would rather make it openly than pretend the case is purely social. A hospital in a city of four lakh people cannot fill 150 beds from privately paying patients alone. Scheme patients make the volume possible, and volume is what keeps a cardiologist's skills sharp and a cath lab's cost per procedure low. Designed properly, scheme work is part of the reason a smaller-city hospital is viable, not a charge against it.

Directors should ask two further questions of any hospital group that serves smaller cities. Does the company know, package by package, whether its scheme work covers its direct costs? And are its private prices rising faster than its costs, which may indicate that scheme work is being cross-subsidised rather than managed?

I do not pretend that package rates are generous or that this approach suits every speciality. Some complex procedures will remain difficult at scheme prices, and rates are for the government to set, not for hospitals to negotiate through rationing. But a hospital that treats its scheme patients as a distinct operating model, designed for their price and reported honestly, can serve its district and its shareholders at the same time. In a smaller Indian city, it is hard to do the second for long without the first.