Is it Right to Blame Private Hospitals for COVID Crisis?

Recently a renowned Mumbai hospital claimed that they are facing an existential crisis due to rising costs and a decrease in revenue. Is it right to blame private hospitals for the current crisis? A HE report.

The pandemic has put an unexpected and tremendous burden on an already weak healthcare system. The responsibility has fallen on both public and private sectors, but since the private sector caters to more than 60% of the healthcare needs, they are facing a relatively higher brunt. These united with challenges of economic sustainability, workforce deficits, and technical barriers of setting up COVID-19 facilities while ensuring the pre-existing high standards of quality care and patient safety.

Dr Sanjay Oak, Corona Task Force Chief, points out that the distinction between a public hospital and a private hospital is artificial. "Finally, a hospital is a hospital. If you remove the hotel component of the hospital— whether you are in a private room, deluxe room, it's all the same. So treatment at Reliance and KEM is going to be the same. Let us for some time, keep aside these artificial boundaries, which keep these sectors separate. That's why we made a recommendation to the government to take 60-80 per cent of the beds of private hospitals," he explains.

Oak accepts that there was resistance from the side of private players. "When we look back, it was the most appropriate decision taken by the Maharashtra government then. But the urgent need for those beds is going down now," he continues.

The healthcare sector now revolves around COVID and is in a Catch 22 situation. "Unless the government think out of the box, it is unlikely that it will continue to exist. I don't believe in a blame game. Private and public sectors have worked in tandem. They have done equally a yeoman service like the public sector, " he adds.

Gautam Khanna, CEO, P.D. Hinduja Hospital & Medical Research Centre, Mumbai says that the government should increase public spending on healthcare in the form of infrastructure development and financing of patient treatment, to ease the burden on private hospitals.

Priority Status for Healthcare, Tax Waivers, GST Exemptions

"The current price cap on medical services provided by private hospitals has put enormous pressure on their financial sustainability. The government should provide financing for treatment so that private hospitals are suitably compensated while keeping the treatment affordable for patients. Just like other sectors, healthcare sector must be given priority status immediately and provided easy financing, tax waivers, clearance of pending dues and GST exemptions," he explains.

The government must also involve all stakeholders in deciding clinical and operational protocols, and implement reforms swiftly to enable efficient and effective treatment of patients.

Hinduja hospital has dedicated an entire building for COVID care. This building includes ICUs, wards for treating both critical and symptomatic patients. Currently, the hospital has dedicated 81 beds, which includes 28 ICU beds for COVID care.

COVID and Strategic Decisions

Khanna points out that pandemic changed the way they work in hospitals. "Due to the strict implementation of social distancing and other safety protocols, many activities and human interactions went digital. We launched several digital services like tele-triage, video - consultation, CovidCare@Home involving digital monitoring, video communication for patients' relatives, enquiries through phone and SMS," he explains.

He admits that technology and data have emerged the biggest enablers during COVID-19, and this digital transformation will continue in the future.

He states that the effects of this pandemic will leave a long-lasting impact on the way patients seek clinical care. We will explore new opportunities and healthcare delivery models in this new environment.

Khanna points out that the hospital has always been a front-runner when it comes to investment in medical technology that will aid patient care, and it shall continue to do so. "In the last couple of years, there have been significant steps taken by our staff in cutting costs of daily management, which now is bearing results for us. As we return to normalcy, we expect our OPD and IPD numbers to rise as well," he adds.

Critical Decisions

Khanna notes that it is also a time to make a significant investment in digital strategy for healthcare so that we can continue to provide healthcare to our patients even in times of adversity.

"Like every product and service provider, private healthcare providers operate on a cost-recovery model where they recover their costs incurred, and invest the revenue for future investments. Running a hospital is a highly capital – intensive industry. Multi-speciality hospitals could take 4 - 6 years to break even. Human resources costs remain one of the highest cost heads. Even before the pandemic, India had one of the lowest healthcare spendings in the world, with only about 1.28% of GDP spent on public healthcare in 2016-17. About 70% of health expenses were being incurred out-of-pocket. The healthcare infrastructure has been inadequate and skewed for a long time, and there is a severe shortage of skilled workforce (doctors, nurses and healthcare professionals)," he adds.

Viability Gap Funding

Dr Harish Pillai, CEO, Aster-DM Healthcare says that the governments both at the Center and States should recognise healthcare as a strategic social sector and act as an incubator to nurture and grow this vital pillar for the well-being of society. "Policies that are drawn up with the annual budgets should encourage accelerated investments both in the creation of hard infrastructure and also the skilled human resource supply chain. The recently announced viability gap funding for new health care funding in semi-urban and rural areas is a step in the right direction. At the stage of policy formulation, it is essential also to get the views of the private health sector as often they are at the receiving end of obscure rules and regulations," he explains.

Arbitrary Nature of Government Interventions

He also notes that the primary limitation is the arbitrary nature of government intervention while fixing COVID hospitals or COVID beds within a hospital and then fixing price caps that are often below the minimum cost of service. "There are massive human resource challenges with community transmission affecting families of healthcare workers and consequently resulting in their quarantine and withdrawal from active duty— challenge of preserving the barrier protection protocols whose breach also results in staff infections. Long hours of duty, wearing full-body suits within intensive care units and associated mental and physical stress. The skewed policies result in lesser than average income levels for private hospitals, thus adversely impacting their monthly commitments on the payroll and other financial obligations. The high consumption of PPE's both for the safety of staff and patients have also pushed up the direct costs for care. In summary, staff shortage resulting from either infections or being in quarantine and fiscal challenges in ensuring the survival of the entity are amongst some of the most significant emerging challenges to boost COVID care," he explains.

Dr Pillai admits that naturally in the current scenario, the entire focus is in preserving cash flows and economic survival while meeting the obligation to various stakeholders. "Most traditionally thought out brick and mortar expansion plans have been abandoned, and the clear plan ahead is to significantly reduce the debt levels and generate more free cash flows. The capital requirements for any potential new expansion should be met through internal accruals. There is still an appetite for niche asset-light model expansion in several new verticals within this space," he explains.

Financial Planning during COVID times

So how will he take budget decisions for this financial year, in light of COVID? "We are no longer looking at EBITDA as before; the more important requirement is the cost ratios in the profit and loss statement especially workforce costs as a percentage to revenue, the Profit After Tax and cash flow statement. There is also a clear focus to overall reduce the fixed costs and push ahead with a variable cost model. This year the Cash flow statement will have greater precedence over the Income statement," he adds.

Will the pandemic demonstrate a turning point in history?

"A pandemic is not the result of acts of omissions or commissions by any sector; rather it's a national wakeup call that hopefully will result in a multi-decade investment close to 5% of GDP in social sectors like education and healthcare. We need to look at a 360 degree ramping up of capacity such that we are better prepared to meet the next pandemic, which in itself is inevitable," concludes Dr Pillai.