Continued Lower Occupancy Levels to Dent Hospital Business

Dr. Vivek Desai, Founder and MD of Hosmac India, shares the current hardships faced by hospitals in light of dwindling occupancy levels due to the COVID-19 led disruption, and what can the industry expect in the near future. These are excerpts from a tele webinar hosted by Motilal Oswal.

Expect muted business this year, situation might ease in 3QFY21

With hospital occupancies drastically down to ~20-30% across India, financial management has been difficult. Specifically, 1QFY21 is expected to be a complete washout for hospitals. Under normal circumstances, the 2Q of any financial year sees higher inflow of patients due to Malaria/Dengue epidemics. However, due to the lockdown period and enhanced hygiene efforts by people, business is expected to be muted this year.

The situation might ease in 3QFY21, but the period coincides with low patient flow on account of seasonality. While hospitals with strong cash position would tide over the disruption relatively unscathed, newly launched hospitals might have to bear the brunt of low occupancies. At this time, release of outstanding dues by the central and state government health insurance schemes would provide some respite to the cash starved private sector.

Dr. Desai believes that occupancy would remain subdued on account of the on-going social distancing norms (hospitals may be forced to keep alternate beds vacant, at least in the general ward). Private hospitals have spare capacity coupled with private/semi- private rooms, thus, social distancing would not be a big issue for them.

Medical tourism in India to be affected

Medical tourism has taken a big hit due to international travel restrictions. COVID-19 has had an adverse impact on profitability as medical tourism is expected to be a high- margin business.

Leveraging Railways’ infra a creative way of tackling the COVID-19 outbreak

Despite some early signs from other countries affected by COVID-19 there was a delay in gearing up to the situation. Moreover, India’s infrastructure is considered inferior vis-à-vis other developed countries. According to Dr. Desai, the current condition has worsened slightly now after a few major hospitals were shut due to healthcare workers being infected.

Also, much time was taken to implement protocols for COVID and non-COVID hospitals. However, much progress has been made now; protocols have been firmed up and currently ~730 COVID hospitals are operational. Dr. Desai believes that leveraging Railways’ infrastructure for COVID was also a creative way of tackling the outbreak in Tier- 2/3 cities. Further, the government has taken over some private hospitals for the short term in a few cases (mostly those which were shut due to staff quarantine).

Three-pronged healthcare structure needed to deal with COVID-19 pandemic

According to Dr. Desai, India needs a three-tiered structure in terms of healthcare infra to deal with the COVID-19 pandemic, these are:

a) Quarantine centers for people that are quarantined or are under observation (some asymptomatic contacts or people waiting to receive their test results). Such facilities are likely to be hotels or hostels,

b) Isolation rooms with negative pressure for people with mild symptoms, and

c) Acute care for people needing hospitalization. Public private partnership (PPP) can play a role in setting up such facilities. Private hospitals have better ICUs, which would be required to treat the most severe cases.

In Dr. Desai's opinion, healthcare facilities in Italy were overwhelmed as the country did not create isolation rooms and admitted everyone. Similarly, the higher number of deaths in Maharashtra could also be attributed to adequate care not being provided to patients. The government would have to figure out ways to reimburse the private sector for the COVID related services.

Hospitals adapting to new technology to run operations

According to Dr. Desai, hospitals have started recalibrating how they operate outpatient units. Tele-consultation is slowly gaining traction. While it would take some time to get widely accepted, it is here to stay as healthcare providers have realized the advantages of tele-consultations to advise patients.

Hospitals had kept tele-consultation fees low initially to drive adaptation. As usage increased, large chains have raised fees to the levels of OPD consultation charges.

In tele-consultations, established brands enjoy certain pricing power unlike smaller players. Narayana Hrudayalaya (NH) and Apollo are already doing tele-consultation in some capacity. NH has made use of such technology in the North East.

In fact, Home healthcare is expected to pick-up due to fear in patients to get admitted.

With respect to medical tourism, legality still needs to be evaluated and hospital/doctor liabilities ascertained. Cross-border tele-health would likely be utilized in the future for high-end, second-opinion cases rather than for lower-end cases.

Online pharmacies would also stand to benefit from the change as all technology enabled healthcare would grow post the covid-19 led disruption.

Consolidation likely; Insurance to play a bigger role post COVID-19

Consolidation looks likely as it would be difficult to tide over the COVID-19 situation for cash-starved companies. There would be increased focus from the government toward healthcare in India, which was earlier neglected for too long. Undoubtedly, there would be more investments into public health. India lacks healthcare infrastructure, especially in Tier-2/3 cities, exacerbated by low availability of healthcare staff and doctors. Outpatient surgery centers are a good way to expand healthcare at low costs, but it has not taken off in India yet because of insurance constraints. Insurance is expected to play a bigger role in increasing the willingness of people to utilize better healthcare services. Some players like Apollo already have presence in these areas.

Measures implemented by hospitals to improve occupancy

Some hospitals have started to reopen elective surgeries after mandatorily testing patients for COVID. Surgical operations have higher revenues and margins than medical consultations operations. However, the forthcoming monsoon season would increase medical cases rather than surgeries, which would lead to delay in hospitals regaining their financial health. Private hospitals typically have 5-6 staff members per bed, with 2-2.5 nurses per bed and doctors, technicians, and other admin workers accounting for the rest. Hospital management has been enhancing measures to motivate HC workers in the wake of the pandemic.

Other highlights:

Post COVID-19, there would be wider use of personal protective equipment (PPE). Every employee is currently receiving 2 PPEs per day assuming life of one PPE is 4 hours. Private hospitals may not face PPE shortage. Also, the government has taken measures to increase supply of PPE. There would be additional cost on account of using PPEs/masks. Cost range for PPE is INR1,200-3,000 per single use. This would get added to the costs, increasing overall healthcare costs.