MANGALURU: The CAG report has flagged injudicious referrals to tie-up hospitals under the Employees’ State Insurance Scheme (ESIS) in Karnataka, leading to avoidable expenditure and gaps in healthcare delivery.
The audit found that between 21 and 31 per cent of total ESIS expenditure was incurred on referrals to private tie-up hospitals, even for services that could have been provided in ESIS hospitals with adequate infrastructure. The high rate of referrals was attributed mainly to insufficient facilities and a shortage of specialist doctors.
At ESIS Hospital in Davanagere, 2,274 insured persons and their family members were referred for cataract surgeries to tie-up hospitals between 2021-22 and 2023-24, despite the presence of a qualified ophthalmologist. The referrals were made due to the absence of supporting infrastructure required for intraocular lens (IOL) procedures. Similarly, ESI Hospital in Mangaluru referred 1,765 ENT cases to external hospitals between 2018-19 and 2023-24 owing to outdated equipment, with no new machinery supplied to the department during this period.
The audit also noted violations of referral guidelines. As per the referral manual, patients discharged from tie-up hospitals should be provided with a seven-day supply of medicines. However, test-checked cases revealed that this provision was not followed, and patients were discharged without receiving the prescribed medication.
In response, the state government informed the audit in July 2025 that referrals were necessitated due to the lack of critical facilities such as ICUs in ESIS hospitals. It added that the high number of referrals in Davanagere and Mangaluru hospitals was due to staff shortages and delays related to procurement procedures.
The report pointed out broader deficiencies in ESIS implementation across Karnataka, including non-implementation of preventive health services, resulting in a loss of central grants amounting to Rs 39.84 crore. Digital initiatives such as telemedicine and the Dhanwantari portal remained underutilised, while medical equipment worth Rs 7.74 crore was left uninstalled. Payments were also released without verifying equipment delivery, and essential services such as ICUs and supply of quality drugs were found lacking.
FAKE MEDICAL CLAIMS
The report flagged a suspected misappropriation of Rs 4.03 crore under the ESIS, citing large-scale manipulation of medical reimbursement claims in the state. According to the findings, officials processed reimbursements based on fake sanction orders, particularly in Bagalkot, where 902 fraudulent claims were submitted using 57 fabricated sanction orders. These were countersigned and routed through the system, leading to wrongful payments. Between 2020 and 2024, an amount of Rs 3.67 crore was disbursed against fake claims. Additionally, 65 more claims worth Rs 36.08 lakh were inserted beyond those approved, further inflating the fraudulent payouts.