Cuts and commissions: Exposing the murky world of Indian health care

Dr Kamal Kumar Mahawar
Dr Kamal Kumar MahawarOct 03, 2016 | 16:47

Cuts and commissions: Exposing the murky world of Indian health care

Your doctor refers you to a diagnostic facility, specialist or hospital for some tests. What would you think? That your health demands it. You’d think it’s in your best interests; you need the test or the treatment, and the people you are being referred to are the ones best equipped to help you.

Presuming that such referrals are only protecting your interests is precisely that — a presumption. In reality, your doctor may have a vested interest in referring you to another doctor or treatment facility — he may earn a proportion of the money you spend on these tests and treatments as commission.


This practice in our health care system, when the referee of a patient pays out to the referrer for sending him "business", is known as "cut practice", or simply "cut" or "referral fee".

Quite simply, it means doctors have a selfish reason behind sending patients for tests to the diagnostic facility that gives out maximum commissions, or to the specialist who will give them the highest cuts, or to the hospital that will send them maximum referral fees, irrespective of the quality of these services.

These financial considerations motivating a doctor pose a strong conflict of interest and the obvious fallout is that a patient can never be completely certain that he actually needs the test or the treatment.

How bad is the situation today? Since the MCI...has explicitly banned fee sharing, such a practice can only go on covertly, without patient knowledge. It is actually a form of corruption, and many believe it to be fairly widespread and an established system in itself, one that even honest doctors get sucked into, eventually.

The scale of this practice is probably embodied in a remark made by a professor of cardiology in the Indian Journal of Medical Ethics: "Pernicious as it is, cut practice has come to stay."


Though almost everybody agrees it exists, its exact impact and prevalence has been a matter of some debate. For example, Dr Akash Rajpal of Ekohealth suspects patients end up paying almost 30–50 per cent more than actuals due to this practice. This is higher than an estimate published in the Indian Journal of Medical Ethics which states that as much as 20 per cent of the total expenses incurred by the patient are "transferred" to the general practitioner.

Personally, on the basis of my interactions with hundreds of doctors, I think one could safely assume the figure to be somewhere in the range of 20-40 per cent. Naturally, who suffers as a result of this extra cost is obvious, but if you are not sure, a report in the famous British journal, the Lancet, quoted Amar Jesani, editor of the Indian Journal of Medical Ethics as saying: "It’s the patient who ends up paying extra money to cover for the kickbacks."

It is widely held that many doctors earn more from these bribes than from their transparent consultation fees. This, one would think, is absolutely scandalous in a country where millions are pushed into poverty each year simply as a result of expenditure on health care. Bribery and corruption has, sadly, come to define India, and it is clear that our doctors are no less prey to such moral decline.


The reason I have chosen to deal with this — amongst many unethical practices that have over the decades engulfed the medical profession in India — first in this book is the general perception that it is a widespread problem, which causes maximum damage to the credibility of the profession. Almost every single medical practitioner I know confirms that it is a rampant phenomenon, declaring of course in the same breath that they are the only ones around to not indulge in it!

The more honest ones have said things like, "It is impossible to survive without giving commissions, but you can refuse to take it", or a reluctant "It is the industry norm these days". It seems to have become standard practice, part of community culture you could say. Like with everything else, once a critical number of people are involved, the others have no choice. You might be unwilling but it’s the majority that will decide the rules of the game that you will have to follow sooner or later.

Perception and reality

Regulators often claim that the practice is confined to a handful of greedy doctors in stark contrast to the popular perception that it is a ubiquitous phenomenon. In a country that tops the global charts when it comes to corruption, where the black economy is bigger than the legitimate economy, there is really no way anybody can put an accurate number to the prevalence of such activities. Most of these transactions take place in cash and short of a massive sting operation undertaken by keen journalists, it would be impossible to know the true extent of corruption involved.

Dr Sanjay Nagral, who has written extensively on this topic in the Indian Journal of Medical Ethics, has been quoted as saying: "There is no concrete data on this practice. But a majority of referrals are based on some form of fee splitting."

Even doctors on the ethics committee of the MCI confess that the practice exists. Rather than arguing about the actual statistics of prevalence (which many people think is close to 100 per cent), to me this is one of those issues where perception matters, even if it is worse than the reality.

Perception alone is enough to damage credibility. And for a profession like medicine, where credibility rests almost completely on trust, this perception is doing irreparable damage to the doctor-patient relationship in our country. "Faith," it was written outside the chamber of our old family doctor in Kolkata, "is the first cure".

If Dr Murmuria was alive today, he would have been very disheartened to know that the last couple of decades have seen a near complete erosion of faith in his profession. This is probably best exemplified in the way patients routinely seek multiple opinions to determine the correct course of action. A patient with high awareness levels and sufficient time on his hands, guided by well-meaning relatives, may then be able to reach the right conclusion, but a less-endowed soul with nobody to hand-hold him, or somebody in need of urgent attention, has little chance.

Cut practice is a major contributor to this trust deficit. We must realise that if the reality of cut practice, as the authorities claim, is not as bad as people think it is, our task of fighting it will only become that much easier. This practice can take one of several forms, all of which mean that a doctor is "rewarded" for referring a patient to another doctor, diagnostic facility, nursing home or hospital.

Cash, cheques (in the guise of professional fee), expensive gifts and dinners, sponsorship to attend conferences, etc, are some of the common rewards. Sometimes, this gratitude is expressed differently. Reciprocal referral amongst doctors is commonplace. For example, a general surgeon and a cardiologist could agree to send each other patients from their respective specialties.

It would, of course, be justified if each of them felt that the other was the best in that field, but not if they were simply scratching each other’s backs. Take the example of this doctor I know who works in a big hospital in a metropolitan city. He recently referred a patient to another renowned specialist in the city. A few days later, the commission duly arrived.

The commission market works very efficiently and payments are made on time. There is always a lot of honesty in dishonesty. This doctor, however, did not accept the commission, or at least that is what he told me. Instead, he called this surgeon and said, "I am unable to accept this. I am sure if you referred a patient to me, you wouldn’t either." The commission was politely declined, but a relationship was forged for the future, on a very clear understanding.

It is estimated that some 39 million families are pushed into poverty every year in India, simply as a result of mounting health care expenses incurred. Commissions to doctors account for a significant proportion of that cost and the trust deficit further escalates costs thanks to second and third opinions sought by patients.

Cost to society as a whole is much higher if we consider the time wasted in taking these different opinions and making sense of it all. Shouldn’t patients just be able to go a doctor, pay a reasonable fee and trust the advice they get? I may be dreaming of a utopian society here, I won’t deny it, but it is a practical dream that can be transformed into reality if we all worked towards it with a firm sense of purpose.

Such mechanisms do indeed exist in other parts of the world. Giving commissions to doctors for referring patients ensures that diagnostic facilities have a steady stream of patients. What started as an additional incentive to doctors by a clever player in the field has now become the industry norm. As a result, doctors no longer need to refer patients to a particular facility, as commission can be expected from every single laboratory in the area.

The advantage of any marketing innovation lasts only as long as the competitors take to figure it out, forcing the players to innovate further to survive. The competitive advantage that any laboratory or specialist may once have had is now long lost. Owners of diagnostic facilities today have little choice as all players give out commissions and local doctors refuse to send patients (or even accept the reports issued by the diagnostic facility as accurate) without this cut.

A pathologist in Bangalore wrote in the Indian Journal of Medical Ethics that he is routinely asked, "How much do you offer? The going rate is 25 per cent." Doctors involved in diagnostic work, like radiologists, biochemists, pathologists, microbiologists and so on suffer the most as they have no direct contact with patients and are dependent on other clinicians for work.

What do you suspect would happen if diagnostic facilities didn’t have to pay out these commissions?

The tests would become cheaper. Twice in the recent past I got indirect proof of this. Last year, one of my friends needed an MRI done on his knee. He was advised by a third friend of ours, a practicing orthopaedic surgeon, that if he wanted a discount, he should claim to be a self-referral, not mention the name of any referring doctor and ask for a discount. My friend did precisely that and obtained 30 per cent discount.

The Ethical Doctor; HarperCollins India; Rs 350.

In another instance, an advertisement was aired on a radio channel in New Delhi in June 2014, where the voice claimed to be able to get you up to 50 per cent discount if you routed the tests through them (rather than the doctors). In both instances, diagnostic facilities showed their willingness to pass on the benefits to the consumer if there weren’t any intermediary doctors to deal with. I have heard of multiple cases where the referrer will inform the referee which tests and treatments should be recommended based on what the patient can afford. Now if that sounds like arranged loot, that is exactly what it is.

Take the example of this quack from a village who showed up with a patient at the clinic of a doctor I know, and said, "He knows that he will need a CT scan." It is also common for radiologists to be asked to confirm the "provisional diagnosis" so that the surgeon can safely proceed with the operation. The saddest part is that most doctors are not even shy about narrating these stories because everybody believes everyone is in it.

Specialists find it impossible to establish themselves without support from their colleagues in general practice. Life is harder when you have just qualified and have a family to feed. No matter how good you are, you need your general practitioner colleagues to back up your credentials in front of the patients. In this situation, you become the biggest surgeon in town if you give out the biggest cuts to the general practitioners. If you are "not so good" or a new surgeon in the area, you have to work harder.

So, the next time your doctor tells you about a certain Dr X being the biggest surgeon in town, you should consider asking how your doctor knows that is so. It is simply not possible to carry out evidence-based comparison of the performance results of doctors in most countries.

Irrespective of the accuracy, the proclaimed results of these comparative assessments are self-fulfilling prophecies and, from the point of view of a specialist, certainly worth the investment. Moreover, if specialists get the patient first, they will expect the same benefit for referring to other specialists, laboratories or hospitals.

So a perverse system is born where one who gets the patient first, benefits the most. Unsurprisingly, this has led to a race to seek patient attention, and that lies at the bottom of a number of aggressive and sometimes unethical marketing practices, discussed elsewhere in this book. Patients have become commodities in this marketplace. They can be, and are, routinely exchanged for money.

Marketing executives

Many private hospitals hire an army of relationship managers solely for the purpose of organising "cuts". The Lancet recently reported that "many hospitals and clinics routinely issue cheques to doctors under sanitized labels such as 'professional fee' to encourage them to recommend their services to their patients."

Allegedly, the expenses come out of their marketing budgets, and can hence be adjusted against income as necessary business expenses. These marketing executives are very powerful people in private hospitals across the country; every specialist working in big private nursing homes and hospitals knows not to get on their wrong side.

You can refuse to cooperate with them, but at your own peril. There is no denying the fact that setting up a hospital is an expensive undertaking with regular fixed outgoings. You need patients on a regular basis to avoid incurring losses, and the only people who make it possible for you are general practitioners. I recently overheard a conversation between the owner of a private hospital and his marketing head: "Send everybody who is sending business of more than 20 lakh to Thailand."

Somebody else I met recently boasted of successfully turning around a failing hospital; all he had to do was put in place an efficient marketing team. These are common stories and not isolated examples. And so I couldn’t help agree when a prominent newspaper recently quoted a doctor as saying, "Every [hospital] in the industry indulges in this practice." 

There is widespread recognition that in order to survive, a private hospital must have arrangements with lots of general practitioners. And since everybody is in it, the relative advantage that the first hospital to come up with this innovative idea may have had has long ceased to exist.

This is a typical case of how distorted unregulated markets function. Eventually, competing players kill each other and they all lose out. This is precisely what happened to the banking industry in the Western world recently with subprime mortgages. Banks were in a race to give housing mortgages to more and more low-worth clients, creating a vicious circle, a housing price bubble and a need for an even lower quality mortgage product to fund that bubble, until, of course, the bubble burst. Some of the biggest names in American banking history disappeared almost overnight.

It is up to us to draw lessons from these events and put corrective mechanisms in place, or else we will see more of these cataclysmic examples of human failure. Human beings are competitive by nature; it is the responsibility of collective society to ensure that competition takes us all to a better place.


Some private hospitals set targets for their consultants where continued practising privileges depend on achievement of a certain turnover. What do you think these doctors then have to do to meet these targets? Won’t they be more likely to request unnecessary diagnostic tests or offer higher cuts to general practitioners?

It does seem as if private hospitals have a lot to answer for. What remains unclear though is whether private hospitals, accounting for a miniscule fraction of the quantum of health care provided in the country, are the main cause of the problem or are simply responding to the demands of an unregulated market.

After all, private hospitals as an entity couldn’t have single-handedly altered the mind-set and culture of the entire profession. We will, later in the chapter, analyse forces that could have weakened the resolve of the profession to stay true to its original ethical and noble foundations.

At the societal level, incentivising and respecting a behaviour usually encourages it. If we respect wealth, irrespective of how it is obtained, and give it a social status, why wouldn’t everyone seek it by hook or by crook? Wealth brings you respect and the tag of being "successful" in society. One lacking wealth, no matter how deserving, is labelled a "failure".

In a society where honesty is considered a weakness and not respected, why would anybody aspire to be honest? These are some of the issues that people in general, and not just doctors, need to examine. In a scenario where the end is all that matters,

I wasn’t really surprised when I heard that apparently, many specialists maintain advanced accounts with general practitioners to secure a steady inflow of patients. For example, if the commission for referring one patient is Rs 10,000, then the specialist will give Rs 50,000 in advance to the general practitioner, as if to buy five patients, and these accounts are topped up as and when necessary.

I do not think it is possible for the medical profession to stoop lower than this, but at the rate we are going, I will most certainly be proved wrong.

What does the general practitioner then have to do to ensure this steady supply of patients? Will this become the standard of cut practice tomorrow? And what’s next?

I leave you to ponder over these questions. Public sector doctors, though much more transparent in their dealings than their private counterparts, cannot be completely exonerated, when it comes to cut practice. They are known to refer patients out to private facilities, sometimes to the ones they own themselves (self-referral).

I personally know a surgeon in a government medical college who used to offer operations privately — for a fee of course — for patients coming to him in medical college, because his hospital theatre slots were always full. Many government hospitals lack facilities to carry out basic diagnostic tests. Patients have to be referred out to private facilities, of course, with an expectation of some benefits in return.

In particular, I remember my days as a postgraduate student in surgery, when representatives from a local diagnostic centre would offer us incentive to send them our patients for CT scans whenever the hospital scanner was out of order. How did these people find out every time our scanner was out of order is beyond my grasp.

The cynic in me did sometimes wonder though, whether these private players had a role to play in the periodic malfunctioning of our scanners... It is worth mulling over the fate of specialists who start off as honest and upright doctors.

For you to demonstrate that you are a good surgeon, you need to treat some patients first. In the early years of your career, referrals are the only way to get patients. If you don’t follow the rules of the market, you won’t have any referrals, and you won’t survive. It’s a simple fact of life which many young doctors learn very quickly.

Not giving commissions is not a viable option at the beginning of your career. Later in life, when you are established and can manage without it, your resistance to this practice has died and you’ve got used to it.

Even if you did suddenly want to stop, wouldn’t it look odd to take a high moral ground after years of happy indulgence? Though it is little consolation, the problem is not confined to India alone and can be seen elsewhere. In the United States of America, where, the majority of health care is delivered privately, there’s a similar problem, albeit probably on a much smaller scale.

Physicians there have been accused of referring patients to services they have a financial stake in. There is evidence that a high proportion of such self-referrals are judged to be clinically inappropriate by independent medical experts. Hospitals in USA are known to incentivise clinicians to keep patients in hospitals for as long as their insurance limits allow. Even in the public sector National Health Service of the UK, where doctors maintain some of the highest ethical standards in the world, there is talk of ‘supply-induced demand’.

It implies that procedures ordered by doctors aren’t always strictly necessary and the desire to perform them on extra "initiative" lists for an extra fee may play a role. This practice seems to have become commoner since the introduction of the latest payment mechanisms ("payment by results"), where hospitals are paid according to the number of procedures they carry out. Commissions seem rife in Dubai, and they have also been reported in Singapore and Malta. The medical tourism industry has also been widely criticised for it.

Commissions and cut practice happen elsewhere in the world too, but it is the scale of this practice in India that is worrisome. Whereas in other countries, it seems to be confined to a few doctors, here it appears to have become part of the system — a system that individual doctors are powerless against.

While we need to start understanding the causes and explore potential solutions to the problem of cut practice, it is worth remembering that there are doctors out there working completely ethically and professionally. I personally know of a few who, instead of taking commissions, ask diagnostic centres to give discounts to their patients.

Such doctors may not be too many in sight, but they are there and they form the backbone of this profession. One such doctor I heard of recently, in Maharashtra, is suing a diagnostic facility for allegedly sending him a cheque (in the guise of professional fee) for referring a patient for a scan.

One bad fish is enough to destroy the whole pond. Why is one good fish not sufficient to cleanse it? Even nature aids the fall and resists the rise.

Business ethos and a noble profession

Indian health care is one of the fastest growing sectors in the economy, growing at a compounded annual growth rate of 15 per cent year on year. The private sector, which constitutes nearly 75 per cent of the total health care infrastructure in the country, accounts for most of this growth.

Private funding has brought many benefits, but at the same time it has transformed health care into an industry where individual businesses, many of which are owned by doctors, focus entirely on maximising profits. How can generating profits be a bad thing for any business?

It cannot be, but that is not the question. The question is whether we really want to run our health care like a business. Currently, our approach seems somewhat inconsistent. On one hand, we are encouraging massive corporatisation of health, but on the other, we complain when hospitals behave like corporates.

It is time for us to take a clear stand as a society. Industrialisation, corporatisation and massive growth of the private sector has also influenced how doctors view their own role in society; many of them no longer identify with the tag of a noble profession and the altruistic sentiments of serving humanity.

Some doctors feel that bringing medicine under the fold of the Consumer Protection Act has further constricted the character of their relationship with patients. A consumer, they argue, cannot be the beneficiary of an altruistic service. It should have been possible for us to prevent a patient from becoming a consumer by keeping the courts out and strengthening the self-regulatory and external regulatory mechanisms.

We took a different route, and the result is there for all to see. A wrong, I believe, was yet again corrected by another wrong.

Unequal distribution

An unequal distribution of resources, with relative concentration of medical professionals, diagnostic services and hospitals in urban areas, catering to the very few who can afford them, leads to excessive competition for patients in these areas and an almost complete lack of services in the rural areas.

For general practitioners, it drives down the genuine transparent fees they are able to charge and acts as a catalyst for them to look for an easy, alternative source of revenue. For specialist doctors and hospitals, it means aggressively competing for a small number of patients. You now have a perfect match — a group of people who are desperate for extra cash, and another group of people who are happy to provide it, to get patients in return. Connect the two groups and cut practice is born.

A leading doctor in Delhi was quoted by a respected medical journal as saying, "Out of some seventeen million inhabitants of Delhi, barely a million can dream of getting treated at a private hospital. So all the hospitals are vying for patients from that small percentage of people. If they’re not going to use kickbacks, they won’t stay in business." 

Let us ponder this further. Does giving kickbacks suddenly increase the number of people who can afford this care? Of course it doesn’t. Increasing the cost actually reduces the number of people who can afford the services.

The choice is ours. We can either go down the vicious cycle of cuts, increasing health care costs and reducing the number of people who can afford it; or get rid of cuts, make health care affordable for more people, and improve our own prospects in return in an ethical manner. Currently, our actions are defeating our own objectives.

The fundamental question as always for each doctor in India is — what will happen if everyone does what I do? This is not just a question for doctors to think about though. How many ordinary people in our society can genuinely claim to have reflected on these lines? Let us not forget — doctors live and breathe in the same society as you and I. They live by the same values and aspire to the same ideals.

The greed

A practice that may possibly have started as a correction to some of the aberrations in the health care system has now become a standard method for doctors to maximise revenue, and this has to be considered the dominant cause in our analysis of this practice. For example, if the practice was confined to some newly qualified specialists trying to build repute, it might be somewhat understandable (though still not justified), but when you see even the eminent established ones indulging in it simply to earn more money, one has to suspect other motives.

Every cardiologist wants to become the best cardiologist in town and the quickest way (for the right ways often take longer) to achieve that status is to indulge in cut practice. When a doctor sends you a patient, he will certainly need to convince the patient that you are the best in town in what you do.

Your strengths will be magnified and weaknesses downplayed. You become a star overnight The idea that greed may be playing a vital role is further reinforced if you just look around. The majority of doctors seem to be doing rather well, financially, and most people would find it difficult to accept that doctors are not being rewarded fairly by society. Most doctors are very well off; some have their own nursing homes, even hospitals.

How is it possible for honest professionals, demanding only their fair share from society, to earn that much? Even if one presumed for a moment that they weren’t earning a lot, might that be because India is a developing country and doctors can’t expect a quality of life and compensation much better than the rest of the population?

The vast majority of doctors are only graduates, although they spend longer in education than others, and one would argue that for a graduate, their compensation is adequate. Those amongst them who qualify for specialist training through competitive examinations spend longer periods in training, typically work in secondary or tertiary care centres, and attract better remuneration.

The road ahead

Irrespective of the underlying reasons and moral justifications, there is little doubt that cut practice increases the cost of health care and seriously undermines patient confidence and trust in our health care standards. Ideally, referral to another doctor, diagnostic facility or hospital should be determined solely on the basis of their ability to help the patient, and not on their ability to pay cuts.

The truth, however, is that doctors have no way of telling the good specialist, diagnostic facility, hospitals, etc, from the not-so-good ones, as the data to reach those conclusions is simply not available, and the decision therefore is always arbitrary. We will discuss elsewhere in this book if it is possible to come up with benchmark numbers that can make this process of identifying the good from the bad a bit more robust.

Adequate compensation

Not paying people enough is the surest way to promote dishonest behaviour. As a society, we must understand that if we expect doctors to work honestly and ethically, we have to reward them adequately in financial terms. Though what constitutes reasonable compensation is arbitrary, it is not impossible to agree on a fee range for consultations and procedures in different geographical areas and specialties. These fee ranges should be clearly set by the regulatory authorities and doctors should not be allowed to charge more or less than that.

Currently, fees vary widely as they have been left to the markets, and aberrations on both sides are commonplace. A bottomless pit encourages people to kill competition by lowering the prices and then supplementing income through unfair means. A limitless ceiling leaves spare money that can then be used to give out cuts.

Legalisation of cut practice

Another radical suggestion sometimes put forward is legalisation of cut practice. The idea does have some merits and is well worth examining. It is not vastly dissimilar to the strategy of legalisation of banned substances (like cannabis) in many countries. Such an approach takes a pragmatic view of legal enforcement and provides a seal of legal (though perhaps not moral) acceptability to somewhat questionable human behaviour.

After all, why should your doctor take the trouble of finding out an acceptable specialist for you in town, explain everything to you, liaise with the specialist, and ensure overall that you get good care, for the peanuts he is paid as "consultation fee"?

If legalised, a referral fee could be paid in a transparent fashion and it will compensate the doctor for the time and effort spent in protecting your interests. This would be a wonderful idea, if only officially rewarding the practice of referral did not run the risk of encouraging even more unnecessary hospital admissions and operations. This strategy is only likely to work well with strong supervisory safeguards in place.

Experience teaches us that it is challenging for any regulatory framework to overcome the hurdles of inefficiency, bureaucracy and corruption.

On a more philosophical note, legalising criminal tendencies may act as an enabler in the short term by freeing up our criminal justice system to deal with more sinister challenges, but in the longer term, it can by itself determine our moral values and alter our notions of what is acceptable behaviour.

Legalisation will pose a further ethical dilemma of overburdening the sickest in society with referral fees on top of all the other necessary expenses that they must incur. Cut practice has to stop, and believe it or not, hospitals, laboratories and even doctors want the practice to come to an end. But nobody can do it in isolation for fear of losing out.

This is where collective action on behalf of society is required. All the MCI needs to do is to conduct a few robust covert investigations and deal with the culprits decisively — by that I mean, give out a punishment that will deter others from indulging in similar malpractices. Punishing a few is all that is required to see lasting changes.

(Reprinted with the publisher's permission.)

Last updated: August 06, 2018 | 19:27
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