Nursing Financial Health Of Hospitals
By Dr.Lisha Ruparel
A robust healthcare industry which is one of India’s largest sector, both in terms of revenue and employment and was poised to reach US $ 372 billion by 2022 as per estimated projected by IBEF has come under the cloud of the COVID 19 pandemic.
The COVID 19 pandemic has come as a double whammy for the hospital industry. The industry which reported a health revenue growth of 15 per cent to 20 per cent as per healthcare consultants Hosmac India PvT. Ltd. in the past few years is staring at contraction in their revenue with some experts believing hospitals may report negative EBITDA (Earnings before interest, taxation, depreciation and amortization) margins in the current financial year. The out-patient department (OPD) and inpatient footfalls have been significantly curtailed and elective procedures have been postponed. Consequently, the occupancy has dropped sharply, from 60-70 per cent in weeks just preceding the spread of COVID-19 to 25-30 per cent, says an ICRA sectoral note. The travel and visa restrictions have impacted the flow of international patients which account for approximately 10 per cent of the revenue for hospital chains like Fortis Healthcare Limited and Narayana Health. The revenues of private sector hospitals are expected to decline by over 30 to 40 per cent as per estimates. The exact impact is unknown and will vary in different parts of the country.
Dr.Vivek Desai, Managing Dirctor of Hosmac India Pvt. Ltd., explains, “The first quarter of the financial year was a washout due to the lockdown. Private hospitals reported an occupancy of 15 per cent to 30 per cent. Gradually the occupancy rates are picking up but are different for each state based on the impact of the pandemic.” This has come as an existential threat for small and mid-sized hospitals which have not been able to function and do not have enough cash to weather the storm.
Mr.Hemant Shah, due to undergo his knee replacement surgery in March this year has indefinitely postponed the procedure due to COVID 19. He doesn’t know when he will be comfortable enough to go to a hospital for the procedure. Numerous patients have put their elective surgeries and regular checks-ups on hold. Majority of the respondents interviewed for this article were not sure when they would feel save to visit a hospital for non-emergency procedures. Dr.Dhaval Bhatt, General Manager at Kokilaban Dhirubhai Ambani Hospital explains, “Patients are visiting the hospital only for treatments of diseases like cancer, cardiac and dialysis procedures.” He believes the occupancy of hospitals will be back to pre COVID levels only when the impact of the virus decreases.
Short Term
Dr. Desai explains that lower occupancy levels have severely impacted cash flows. The facilities need adequate working capital for their day to day functioning. Prudent use of capital and conservation of cash will be essential for survival. Hospitals with high level of debt in their balance sheet will have difficulty in paying interest on their loans and will have to look for means of raising addition cash either by selling equity; using the moratorium period offered by banks; negotiate with banks for lower interest rates or by raising funds by means of unsecured loans or by offering non-convertible debentures from the financial markets. He says hospitals should leverage technology to create additional revenue sources. For example OPD teleconsultations can be started by hospitals and patients from any geographical location can avail the service thereby expanding the client base. Hospitals should also be prudent in collecting outstanding dues. Some hospitals players have reduced fixed costs by asking their medical and non-medical manpower to voluntary come forward and take a temporary pay cut. The Government can help in quick processing and payment in dues for health schemes or income tax refunds. Dr. Bhatt says, majority of the facilities have consciously reduced their electricity and water usage, reduced marketing expenditure, reduced inventory levels to reduce the working capital requirement. Also non-clinical departments like marketing and public relations have seen rationalisation in the existing manpower.
Medium Term
Majority of the hospitals are mid-sized and fall in the MSME (Micro, small and medium enterprise) category. These facilities should avail the benefits and incentives offered by the Government in wake of the pandemic. We are yet to see a breakthrough and change in delivery models in the industry. The pandemic may hasten things up. Dr.Desai says healthcare at home should be focussed upon; modalities and legal requirements for the same should be worked upon. India is already facing an acute shortage of beds and patients which are not very serious can be treated at home with adequate monitoring.
Longterm
The virus has cast a shadow on expansion plans by hospitals and entrepreneurs who were planning to start new facilities. The uncertainty has forced the stake holders to pause and give a serious thought to their plans by revisiting their assumptions. Dr.Bhatt opines that projects which were in commissioning stage will be completed, adding that"hospital owners may defer new hospital projects depending on the future economic scenario and also if any regulatory changes are brought in by the Government."
Taking into consideration the stress in the industry, recommendations and proposals have been put forth on behalf of the sector to the Government by Nathealth (Health Federation of India). Some of them are providing six to nine months’ moratorium on all working capital, principal, interest payments on loans and overdrafts which bringing in liquidity and allowing for business continuity, deferment of advance tax payments at the Central Government level, a waiver of GST on input costs and services for 2 quarters and at least 50 per cent rebate on the current Commercial Rates of Power currently being paid by hospitals, diagnostics centers, pathology labs and other healthcare service providers to ensure sustenance of business.
Dr.Sangeeta Pikale, a mid-sized hospital owner, firmly believes that there should be segregation of facilities treating COVID and non COVID patients. Small to medium sized hospitals which range from approximately 30 to 50 beds do not have adequate space to ensure segregation and can lead to infecting non COVID patients. Once the patients are assured that it is a non COVID facility there would be less hesitant to visit the facility thereby improving the occupancy rate. Dr.Desai also endorses the view. "Wherever possible and practical hospitals should have a ‘hub and spoke’ model with the spoke dedicated to COVID. Private hospitals which do not have the facilities can lend their manpower at dedicated COVID facilities thereby participating in the fight against COVID and also ensure the operations of the hospital are not hampered. The virus is here to stay so we will have to work around it and provide required medical services,” he concludes.