COVID19: Managing the cost of testing

That the number if COVID19 cases will rise to 1 Million by June 2020 if not May 2020, seems a certainty given that patient counts have been doubling every 4-5 days. Assuming that 10% of detected cases will need critical care, means that we will need 30,000 – 50,000 beds in critical care. This also means that for every positive there will be 25 negatives, putting the cost of detection alone at Rs. 10,000 Crores. If insurers need to pay even 50% of this, the potential cost of testing alone to be reimbursed by insurers are likely to be Rs. 5,000 Crores. 

Yet, it is possible to lower testing costs. The United States of America has 5 negatives for every positive. That ratio implemented in India would mean testing costs of only 2,500 Crores, of which Rs. 1,250 Crores would be borne by insurers. Even for states such as Claifornia that are testing extensively within USA, the ratio is 10 negatives for every positive which would halve the testing cost in India. 

The Key to reducing testing costs is to follow strict adherence to the COVID19 testing protocols laid down by the Indian Council for Medical Research, namely – 

  1. Presence in vulnerable clusters / large migration gatherings or evacuee centers
  2. Symptomatic Influenza-like illness

A Key strategy for insurers and hospitals to utilize resources optimally, should be to use telemedicine to qualify cases complaining of COVID19-like symptoms. Telemedicine will help not only with lowering the cost of testing itself, but also determining the veracity of COVID19 claims for an insurer. 

Get in touch with Vitraya to understand how to deploy telemedicine to qualify covid cases.

  1. Source:
  2. Cost of each test assumed to be Rs. 4,500
  3. Source:
  4. Source:

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Financing COVID19 critical care

At the peak of the COVID19 crisis, India will need between 30,000 – 200,000 ICU beds. If these ICU beds are already available, the cost of treating people in critical care will range between Rs. 12,000 and Rs. 120,000 Crores, depending on the magnitude of the number of cases. 

In this blog, we outline the nature of these expenses and some ideas on how they might be minimized. 

  1. 55% (Rs. 6,600 – 66,000 Crores) of this spend will be on consumables, mainly PPE. The cost of PPE can be reduced but not by lowering specifications. 
  • Centralize the purchasing and supply of PPE
  • Get the specification of PPE correct. PPE provided by many vendors and even the government thus far, is of poor quality and may jeopardize the lives of healthcare workers. This will in turn only increase the cost of dealing with COVID19 not reduce it. 
  1. 27% of (Rs. 3,200 – 32,000 Crores) is to fund the salaries of doctors and hospital staff. 
  • Government policy often comes in the form of price caps. Price caps or salary caps will demoralize medical professionals. 
  • Institutional frameworks that incentivize doctors to take lower cash salaries are possible and work better. We propose one such framework, in the form of government bonds (below) – 
    • propose to hospitals to reduce the doctor and staff cash salary component of pay by say 50%
    • compensation 20% reduction by distribute tax credits equivalent to 20% of reduced salaries
    • award the remaining part of the salaries in the form of special government bonds payable in 2-3 years with a 5-7% coupon. These bonds would strictly be for distribution to the hospital staff
    • the value of bonds awarded to each hospital shall be linked to the value of the COVID spend 

We believe that with these measures the Government may be able to reduce / defer 40-60% of costs. Further, combined with the health insurance coverage by general and health insurers, of 10-20% of this spend, we believe that the Government can reduce the cost of care to Rs. 8,500

  1. Assumes total 1 lakh infected cases by June 2020
  2. Assumes total 10 lakh infected cases by June 2020

– Rs. 85,000. Further, the Government can defer a further Rs. 1,000 – 10,000 Crores worth of payments to later years by issuing bonds. 

Key assumptions

  1. We have modeled our analysis using the following two scenarios:
    1. 1 Lakh infected cases by June 
    2. 10 Lakh infected cases by June
  1. In each scenario, we have assumed that 10% of the people below 50 years of age and 50% of the people above 50 years of age will need ICU care
  1. Cost of non-ICU care will be negligible, because people will stay at home and exercise home isolation and take medicines
  1. Analysis of per case costs:

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Readying the enablers for providing COVID19 care through private hospitals

These are tough times for many in the government. We have a situation that even the best minds would not be able to do a fine job of: at least not on every tactic, not every move. For the most part the Government of India has been admirably proactive, even though several people may object to one or more of the measures enforced by it. 

In part already in place, but fast coming is a dire need of hospital infrastructure. Our blogpost is meant to provide clarity to help the government and insurers create a response to maximize hospital productivity to respond to the crisis. 

First, it is increasingly clear that COVID19 care cannot be fought without private hospitals and private sector-run healthcare services. The government seems to have recognized this. Allowing private labs to conduct tests is one step. Having private hospitals set aside COVID19 facilities is another. 

Second, the interest of the citizens will NOT be served unless the government adopts fair methods of engaging private healthcare providers. This is where the government’s efforts may have fallen short. 

  1. The government has asked private hospitals to provide healthcare free of cost
  2. However, the government has not addressed the important question of who will bear the cost of the free healthcare services being provided. Expecting the healthcare providers to bear the costs will almost certainly result in widespread chaos and denial of services. 

To simultaneously engage private healthcare providers AND keep costs under check adopt the New York model for providing healthcare. This entails – 

  1. Reimbursing hospitals for reasonable expenses based on actual expenses incurred
  2. Decreasing the hospital expenses by centralizing COVID19 purchasing and supply chain 

Creating win-win financial instruments to decrease structural costs of private hospitals

See: Cost of Providing Covid19 Care: What is reasonable? for our estimate on reasonable expenses.

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Costs of providing COVID19 care: what is reasonable?

What is fair to expect from private hospitals, and what are the costs for which hospitals must be paid by the government? We analyze this question along the following cost heads:

Type of costWho should bear expenseRationale
RoI / Loan payments on medical equipmentHospital Banks to defer EMIs
Doctor and nurse salariesGov / InsurerStaff needed for COVID19 care
Personal protective equipment and masksGov / InsurerAdditional cost needed to provide COVID19 care
Diagnostic testsGov / InsurerAdditional cost needed to provide COVID19 care
Drugs / medicines used for treatment Gov / InsurerAdditional cost needed to provide COVID19 care
Amortized / rental costs for land & buildingsHospitalBanks to defer EMIs
Electricity costsGov / InsurerAdditional cost needed to provide COVID19 care
Patient personal needs (food, soap, etc.)Gov / InsurerAdditional cost needed to provide COVID19 care
Cleaning and housekeepingGov / InsurerAdditional cost needed to provide COVID19 care

In the following sections, we outline the reasonable costs of COVID19 care. These are costs that would be borne by government institutions too. Therefore, it is only reasonable that these costs be paid to private hospitals. 

Crafting this cost sharing mechanism together with private hospitals would not only help the government manage costs well, it would also leverage the current organizational hierarchies and systems to deliver care speedily and efficiently. 

1. Daily cost breakup of providing COVID19 ICU facilities (INR)

2. Daily cost breakup of providing COVID19 ICU facilities equipped with Ventilators (INR)

*Drugs and medicines only include anti retroviral drugs and chloroquine. Additional drugs and medicines needed to treat other conditions may be needed

**Testing costs include only COVID19 test. Other tests may be needed particularly in ICUs, depending on the condition of the patient. Examples, x-rays, ultrasounds etc. 

3. Daily cost breakup of providing COVID19 Isolation ward (INR)

4. Daily cost breakup of providing COVID19 quarantine facilities (INR)

*Drugs and medicines only include anti retroviral drugs and chloroquine. Additional drugs and medicines needed to treat other conditions may be needed

**Testing costs include only COVID19 test. Other tests may be needed particularly in ICUs, depending on the condition of the patient. Examples, x-rays, ultrasounds etc. 

Key Assumptions

  1. Assumptions for testing costs 
    • No. of tests for ICU, ICU with Ventilators, Isolation ward: 1 test every 2 days
    • No. of tests for quarantine: 2 tests over a 15 day period
    • Cost of test: Rs. 4,500 / test. 
  1. Assumptions for medicine costs
    • Chloroquine: 3 tablets / day, @ Rs. 8 per tablet
    • Anti retroviral drugs: 1 bottle @ Rs. 1500 per bottle
  1. Cost of mask: Rs. 300 per unit
  1. Cost of PPE: Rs. 1,500 per unit
  1. Cost of nurses, doctors, specialists standardized for Tier 1, 2, 3 cities
  1. Nurses per bed per shift
    • ICU: 1
    • ICU w ventilator: 1
    • Isolation: 0.33
    • Quarantine: 0.2
  1. Doctors per bed per shift: 0.3 
    • Resident doctors: 0.25 per bed per shift
    • Senior / specialist doctors: 0.05 per bed per shift

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