Business is not a Bed of Roses for Private Hospitals

Will the pandemic consume private hospitals? A HE report.

The global coronavirus pandemic has created a huge need for healthcare in India, but it has also delivered a substantial financial blow to the sector. Evidently, with most patients needing testing or treatment for COVID-19, very few of the patients whose ailments really earn money for the health care sector are setting foot inside of a hospital these days.

The private sector is the bedrock of India’s healthcare system, providing the majority of the country’s capacity and capability, particularly in higher secondary and tertiary care. This sector is among India’s top five employers, providing more than 60 per cent of hospital beds at 8.5-9 lac[1] , more than 60 per cent of inpatients, and 80 per cent of doctors.

The revenue for the private healthcare sector is estimated at Rs 2.4L crore; its EBITDA is Rs 31K crore (13%) and PAT is estimated at Rs 7K crore (3%).

According to a FICCI-EY report, there are limited options for keeping costs down in the sector right now, due to the need for vigilance and preparedness for the ongoing and eventual treatment of more COVID patients. As a result, EBITDA margins experienced a sharp fall, to lower than 40 per cent of its usual value by early April. According to the report, "Losses are estimated to the tune of Rs 7,300 crore for a month and Rs 21,900 crore for a quarter if revenues are at 30% (occupancy of 20%).”

With India in lockdown from the virus, many non-COVID patients have refrained from entering hospitals, and postponed non-urgent surgeries. The reason for this is mostly twofold: To avoid infection at hospitals, and to curb spending after having lost jobs.

Low Bed Utilisation and High Operation Cost

According to Gautam Khanna, CEO of Hinduja Hospital, the first and biggest challenge to running a hospital in Mumbai is maintaining the infrastructure requirements to handle COVID cases. “The hospital must also ensure that COVID patients don't mix with other patients. We have to ensure the safety of staff, and provide them with a suitable level of PPE, depending on the area they operate. We have to screen and triage before entering the hospital. It is a challenge to get contractors to come and do this work during a lockdown. Further, many of our staff members travel from Dombivili and Kalyan; to ensure their presence is also a big challenge for us.”

He continues, “There is also a lot of fear and anxiety among staff. Earlier, there was a problem of procuring PPE, drugs, and now it's streamlined. We also have to adhere to the new government protocols all the time, which means additional protocols and additional changes."

What of the financial challenges? "Elective surgeries are zero now. Occupancy rates at most hospitals are around 20-30 per cent. Hospitals are bleeding. Earlier occupancy was in the rate of 70-80 per cent, and if your occupancy rate is quartered, clearly three-quarters of your revenue has gone. Regular patients are not coming to hospitals due to COVID, and COVID charges are not so high. This is causing financial distress to the hospitals."

COVID Crunch

So, will the pandemic be the downfall of India’s hospitals?

A significant part of the revenue of private hospitals goes towards capital expenditure and maintenance of the facility. 71 per cent of a hospital's revenue is from diagnostic procedures and surgeries, 10 per cent is from bed charges and 20 per cent is from outpatient department treatment (OPD).

Salary and wages constitute the maximum expenditure for a hospital, ranging from 45-55 per cent of revenue, followed by consumables, which vary from 20-25 per cent of revenue. Power and water consumption, along with linen and laundry, cost approximately 8 per cent of revenue. Hospitals also incur other expenses, like equipment and building maintenance, business promotion, and communication services.

"The main expenditure of our centre has been under the banner of staff salaries,” says Dr. Raman Tanwar, CEO of Jyoti Hospital, Gurugram. "We have noticed a 70 per cent reduction in footfall of OPD and our reduction in the number of surgeries has been about 40 per cent. The operating costs have increased by about 30 per cent, and it has become more difficult to work given the constant scare of infection and the financial losses to the hospital."

Aster's Unique Pandemic Response

According to Dr Harish Pillai, CEO of Aster India, Aster DM Healthcare, one of the greatest advantages at Aster was the company’s experience in coping with the Nipah virus epidemic in Kerala.

"During the second phase of the Nipah virus outbreak in 2019, the index [first documented patient] case was admitted in our flagship hospital in Kochi– Aster Medcity. The patient was not shifted to a public facility and was treated for 53 days at our facility and recovered completely. This institutional memory helped us to reinforce our safety standards and care algorithms. We created a command centre right from the early days of the outbreak in Wuhan to monitor the situation in India.

“By the middle of March, we had a fully functioning command system in place which consisted of the Unit Heads, Chief of Medical Services along with Quality and their Infectious Diseases counterpart. The team conducted a daily organisational review that focused on enhancing inventory levels across the network, staff safety & preparedness, exchange of best practices, liaising with authorities, enhancing diagnostic testing for COVID-19 both using Molecular Diagnostics and RTPCR, and sharing human resources. Thus far, our governance system for the COVID-19 pandemic has been highly effective.”

According to Aster’s CEO, the core objective in the current scenario is to maintain business continuity so that services to COVID and regular patients is not impacted. "Immediately after the initiation of lockdown across India, there was a dramatic drop in both outpatient and inpatient footfalls and consequent reduction in elective procedures. The only meagre footfalls were those coming to the fever clinics and emergency rooms.

“In its quest to preserve cash flows and become EBITDA neutral, Aster has initiated a series of measures to reduce the fixed costs, including payroll and materials. There is also an attempt to reduce other cost items like marketing and overheads. While these cost measures are in place, the supply chain team are also looking at enhancing inventory specifically for essential medicines and PPEs. We are confident that the cost-containment measures adopted will help us sail through this challenging period and emerge stronger out of it."

Aster has also launched several digital initiatives such as a COVID-19 symptom tracker powered by AI, Home Healthcare and the Aster e-Consult service, which is in line with the Government of India's regulatory changes in opening up telehealth services.

The group has also begun upskilling non-critical care nurses and non-speciality doctors on a large-scale digital platform to ensure that they are well trained for the management of COVID-19 cases. A unique rota system was also designed to ensure that one-third of the staff was deployed for the management of COVID-19 cases, another third for non-COVID-19 issues and the remaining third was kept in quarantine.

More Hospitals Must Adapt and Evolve to Survive

Dr. Naresh Trehan, Chairman & Managing Director, Medanta, points out that hospitals must adapt and evolve to treat patients amidst this challenging environment. So, what measures has Medanta adopted? "Medanta has adopted mandatory thermal screening and assessment of COVID symptoms. People who may exhibit symptoms are immediately transferred to an isolated Flu Clinic and/or a dedicated COVID hospital designated by the government. Only one attendant is allowed with a patient and must compulsorily wear a mask and sanitise their hands before entering the premises. The hospital staff ensures social distancing between visitors. Patients who are candidates for elective surgery also have to undergo testing either at the hospital or submit their test reports from any other Government approved facility," Trehan explains.

With lockdown restrictions eased in the several southern states, many hospitals operating in the region hope that things will be starting to get back to normal soon.

Already Spotting Green Shoots

"[Earlier, the] government had asked private hospitals not to do elective surgeries. Now, they have relaxed those norms. We are allowed to do elective surgeries and outpatients. In April we [earned] 45 per cent of Pre-COVID revenue; in May we are going to see 55 per cent. By June, we hope that our numbers will be back to 60-65 per cent," says Jagannath MS, CFO of Columbia Asia Hospitals, which has five hospitals in Bangalore.