The Kerala High Court Mandate: A Wake-Up Call for Hospital Costing

On November 26, 2025, the Kerala High Court delivered a landmark ruling that is set to fundamentally reshape how private healthcare operates in India. By upholding the Kerala Clinical Establishments Act, 2018, the court mandated an unprecedented level of financial transparency: hospitals must prominently display their services, baseline rates, and package rates on their websites and at reception.

This judgment, which also enforces barrier-free emergency care and rapid grievance resolution, is more than just a win for patient rights; it’s a powerful, non-negotiable directive that signals the end of “billing opacity” in Indian healthcare.

Implication 1: Kerala is the Blueprint for India

While the ruling applies immediately to Kerala, it represents a watershed moment for the entire country. The judgment affirmed the State’s competence under public health entries and aligned the Act with Articles 21 (Right to Life) and 47 (Duty to Public Health) of the Constitution. This legal foundation makes it highly likely that similar fee transparency mandates will be adopted and enforced across other states and eventually, at a national level.

The shift is clear: Arbitrary pricing models are legally unsustainable. Every hospital in India, regardless of location, must now prepare to answer the simplest, yet most challenging, question: How do you justify your price?

Implication 2: The Transparency Paradox

The court’s mandate creates a critical paradox for hospitals relying on legacy, top-down costing methods (or worse, no formal costing at all):

Compliance Risk: Hospitals must display package rates. If those rates are arbitrary, pulled from old chargemasters, or based on guesswork, they risk consumer backlash, regulatory fines, and license suspension if they cannot substantiate the costs.

Profitability Risk: To display rates publicly, hospitals must ensure those rates cover the actual, granular costs of providing the service—including labor time, equipment usage, and overhead allocation—while maintaining a healthy margin. Without accurate cost data, they risk unintentionally under-pricing complex packages or losing patient trust through price instability.

Why Guesswork Pricing is a Dead End

Most hospitals today price services using one of two outdated models:

• The Mark-up Model: Taking the purchase cost of an item (like an implant or drug) and multiplying it by a fixed factor. This ignores the cost of the labor, facility, and support services required to deliver it.
• The Competitor Model: Setting prices based on what the nearest competitor charges. This simply duplicates another hospital’s profit or loss structure.

The Kerala mandate forces a transition to a robust, evidence-based costing system. Without this foundation, the compliance undertaking becomes a major threat to financial viability.

The Solution: Costing that Builds Trust and Profit

For forward-thinking hospital leaders, this mandate is the ultimate catalyst for operational excellence. The only way to achieve mandatory transparency while protecting profitability is through advanced cost accounting, specifically Time-Driven Activity-Based Costing (TDABC).

TDABC offers a path to compliance and strategic pricing:

Accurate Package Costing: TDABC precisely measures the cost of every resource consumed in a patient’s journey—from the nurse’s minute-by-minute care to the specific time a piece of imaging equipment is used. This allows a hospital to define a truly accurate package rate for, say, a knee replacement, eliminating hidden costs and surprises.

Regulatory Justification: When audited, a TDABC system provides the verifiable data (time equations, capacity cost rates) needed to prove that the displayed price is derived from the actual consumption of resources, not arbitrary mark-ups.

Enhanced Patient Experience: Transparency builds trust. When patients see a comprehensive, all-inclusive package rate that is demonstrably fair, the perceived value of the care skyrockets. This is critical for driving the growth of high-margin Medical Value Tourism (MVT).

How Proactive Solutech Transforms Your Compliance Risk

Proactive Solutech specializes in embedding robust, globally credible costing frameworks like TDABC into hospital operations.

We partner with you to:

• Establish Granular Costing: Implement TDABC models across your high-volume procedures and complex package rates (Section 39 compliance).
• Optimize Capacity: Identify and measure the cost of unused resources and bottlenecks, freeing up capacity to increase patient volume while lowering unit costs.
• Develop Strategic Pricing: Use the true cost data to set competitive, defensible prices that comply with regulatory displays while maximizing legitimate, ethical margins.

The court has decreed that ethical and equitable care requires transparency. For Indian hospitals, the time for compliance is now, and the tool for success is accurate costing. Don’t view this as a burden; see it as the chance to become the most trusted, most profitable healthcare provider in the region.

To ensure your hospital’s costing and pricing processes meet the new standard for compliance and competitiveness, contact Proactive Solutech today.