The Himachal Pradesh High Court has delivered a significant ruling clarifying the financial obligations of the State Government under centrally sponsored health schemes, directing it to clear pending dues of private empanelled hospitals within three weeks. The judgment resolves a deadlock between the Centre and the State over who bears the cost of claims exceeding the Centre's fixed ceiling under the Ayushman Bharat-Pradhan Mantri Jan Arogya Yojna (AB-PMJAY) and the Mukhya Mantri Himachal Health Care Scheme (HIMCARE). The Court held that the State must bear the excess liability beyond the Centre's maximum ceiling, rejecting the State's plea of financial constraints and lack of funds as untenable excuses for non-payment of duly approved bills.
Background & Facts
The Dispute
The petitioners are 34 private hospitals empanelled under the AB-PMJAY and HIMCARE Schemes. They provided cashless treatment to beneficiaries under these schemes but were not paid their dues despite the respondents admitting that payments were due. The dispute centred on who bears the financial liability for claims exceeding the Central Government's fixed ceiling under the AB-PMJAY Scheme.
Key Facts
- The AB-PMJAY Scheme provides a maximum sum insured of Rs. 5,00,000 per family per annum for secondary and tertiary care hospitalization.
- The Central Government's share is fixed at 90% of the maximum ceiling of Rs. 1,052 per family per annum (Rs. 946.80), amounting to Rs. 49.71 crores annually for Himachal Pradesh's approximately 5 lakh eligible families.
- The State Government's share is 10% of the maximum ceiling (Rs. 5.52 crores annually).
- The State adopted the Trust mode for implementing the Scheme, where the State Health Agency (SHA) reimburses hospitals based on actual claims.
- From 2021-22 onwards, the number of patients treated and claims rose significantly, exceeding the Centre's fixed ceiling. For example, in 2021-22, claims amounted to Rs. 73.71 crores, but the Centre released only Rs. 45.35 crores (its fixed ceiling), leaving the State to bear the excess Rs. 23.58 crores.
- The State's actual expenditure per family rose from Rs. 838 in 2020-21 to Rs. 2,907 in 2025-26, far exceeding the Centre's ceiling.
- The State admitted in its reply that it was aware of the Scheme's financial obligations but cited lack of funds as the reason for non-payment of pending bills.
- The State also initiated a vigilance inquiry into the hospitals' claims, which the Court found was being used to delay payments despite the bills being duly approved.
- As of 06.07.2026, duly approved bills of Rs. 25,22,50,100 under AB-PMJAY and Rs. 11,03,10,597 under HIMCARE were pending for release.
Procedural History
- 2018-2020: The State notified guidelines for implementing AB-PMJAY and HIMCARE Schemes, adopting the Trust mode and empanelling private hospitals.
- 2021-2024: Claims and patient numbers rose, leading to disputes over financial liability for excess claims beyond the Centre's ceiling.
- 2025-2026: Multiple hearings were held where the Court directed the State to release pending payments. The State cited lack of funds and initiated a vigilance inquiry, which the Court found was delaying payments unjustly.
- 25.03.2026: The Court directed the State to release all pending approved bills within two weeks.
- 10.04.2026: The State informed the Court of a contemplated vigilance inquiry into the hospitals' claims.
- 28.04.2026: The Court directed the State to verify pending bills under HIMCARE within two weeks and release payments for dialysis cases.
- 21.05.2026: The State reported partial settlement of claims but stated progress was slow due to staff shortages.
- 05.06.2026: The Court directed the State to deploy additional staff for verifying claims and directed the State to release payments by 25.06.2026.
- 25.06.2026: The State sought modification of earlier orders, citing ongoing vigilance inquiry. The Court stayed the State's decision to withhold payments and directed release of duly verified bills.
- 05.07.2026: The Court reserved the matter for judgment.
Relief Sought
The petitioners sought directions to the respondents to release pending payments for duly approved bills under AB-PMJAY and HIMCARE Schemes, along with interest for delayed payments as per the Scheme's provisions. They also sought directions to ensure future claims are processed and paid within stipulated timelines.
The Legal Issue
The central question was whether the State Government is liable to bear the financial burden of claims exceeding the Central Government's fixed ceiling under the AB-PMJAY Scheme, and whether the State's plea of financial constraints and ongoing vigilance inquiry can justify non-payment of duly approved bills under the Scheme.
Arguments Presented
For the Petitioners
The petitioners argued that the State is bound by the Scheme's operational guidelines and the Memorandum of Understanding (MoU) executed with the Central Government to bear the excess liability beyond the Centre's ceiling. They contended that the State's plea of financial constraints is untenable and that the ongoing vigilance inquiry cannot be used to delay payments of duly approved bills. They relied on the Supreme Court's decision in Municipal Council, Ratlam v. Shri Vardichan to argue that financial constraints cannot justify non-performance of statutory duties.
For the Respondent
The State argued that the Centre's liability is limited to its fixed ceiling of Rs. 49.71 crores annually, and any excess liability must be borne by the State. It contended that the Scheme's operational guidelines and MoU clearly stipulate this sharing pattern and that the State is not in breach of its obligations. The State also argued that the vigilance inquiry into the hospitals' claims justified the delay in payments.
The Court's Analysis
The Court examined the Scheme's operational guidelines, the MoU executed between the Central and State Governments, and the State's reply to the writ petitions. It noted that the Scheme mandates that the actual premium or treatment cost, or the maximum ceiling of the estimated annual grant-in-aid per family, whichever is less, would be shared between the Central and State Governments in the ratio of 90:10. The Court observed that the Centre's liability is capped at Rs. 49.71 crores annually, and any excess liability must be borne by the State.
The Court rejected the State's plea of financial constraints, holding that lack of funds cannot justify non-payment of duly approved bills. It relied on the Supreme Court's decision in Municipal Council, Ratlam v. Shri Vardichan to hold that financial constraints cannot be accepted as a valid excuse for non-performance of duties by public authorities. The Court also rejected the State's argument that the vigilance inquiry justified the delay in payments, stating that the inquiry cannot be used as a tool to withhold payments of duly approved bills.
The Court held that the State is bound by the Scheme's operational guidelines and the MoU, and that it cannot escape its financial liabilities by pleading unworkability of the Scheme or lack of funds. It observed that the State's reply acknowledged the Centre's ceiling-based payments and the 90:10 sharing pattern, and that the State's only defence was lack of funds. The Court held that this defence is untenable and that the State must bear the excess liability beyond the Centre's ceiling.
The Court also directed the State to ensure that future claims are processed and paid within the stipulated timelines, and that delayed payments attract interest as per the Scheme's provisions. It directed the Central Government to ensure prompt release of its contribution under the AB-PMJAY Scheme.
"The State cannot keep on evading its financial obligations under pretext of it having contemplated or initiated a vigilance inquiry into bills submitted by the private empanelled hospitals. These hospitals also have to run, to conduct their day to day business. They are still liable to provide cashless treatment to the patients under AB-PMJAY & HIMCARE Scheme (dialysis only w.e.f. 31st August, 2024)."
The Verdict
The Court directed the State Government to clear its share of financial liability towards the petitioners' empanelled hospitals under the AB-PMJAY Scheme by releasing all duly approved pending bills within three weeks from the date of the judgment. The bills shall be released along with interest at 1% of the claim amount per week after 15 days of delay, as provided in the Scheme. The Court also directed the State to release duly approved pending bills under the HIMCARE Scheme within the same timeline, along with the same interest. The Court directed the State to ensure that future claims are processed and paid within the stipulated timelines, and that delayed payments attract the same interest. The Central Government was directed to ensure prompt release of its contribution under the AB-PMJAY Scheme. The Court also held that if any amount is found recoverable from the petitioners upon conclusion of the vigilance inquiry, the respondents shall be at liberty to proceed for recovery in accordance with law.
What This Means For Similar Cases
State Liability for Excess Claims is Non-Negotiable
- The judgment clarifies that the State Government cannot escape its financial obligations under centrally sponsored health schemes by pleading financial constraints or lack of funds.
- The State is bound by the Scheme's operational guidelines and the MoU executed with the Central Government, and must bear the excess liability beyond the Centre's fixed ceiling.
Vigilance Inquiries Cannot Delay Payments of Duly Approved Bills
- The Court held that ongoing vigilance inquiries cannot be used as a tool to delay payments of duly approved bills.
- The State must release payments of duly approved bills within the stipulated timelines, regardless of ongoing inquiries.
Future Compliance Must Adhere to Scheme Timelines
- The Court directed the State to ensure that future claims are processed and paid within the stipulated timelines under the Scheme.
- Delayed payments will attract interest at 1% of the claim amount per week after 15 days of delay, as provided in the Scheme.
Central Government Must Ensure Prompt Release of Contributions
- The Court directed the Central Government to ensure prompt release of its contribution under the AB-PMJAY Scheme as per the agreed covenants.
- This ensures that hospitals receive timely payments and can continue providing cashless treatment to beneficiaries.
