Price cap, concentration on metros dash hospital chains’ revenue recovery hopes from COVID-19 treatment

Large private hospital chains, which were hoping to recoup some of their losses by allocating some beds to COVID-19 patients, have hit a wall, owing to under-utilisation of bed capacities and lower realisations.

Though most hospitals now want to reallocate COVID beds to non-COVID patients, regulations and infection protocols prevent them from doing so.

The hopes of hospital chains that COVID treatment will add to revenues dashed primarily because of the price caps by the government. Also, many large chains are concentrated in big cities, and most COVID cases are now being reported from Tier-II cities and smaller towns.

Max Healthcare Institute, India’s second-largest hospital chain, says currently less than half the COVID beds are occupied.

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COVID revenues did not contribute even 25 percent to the overall revenues even during its peak, the company says. Max reported revenues of Rs 4,026 crore in FY20, with an average occupancy of 72.5 percent over a bed capacity of 3,391 beds.

The company had an average revenue per operating bed of Rs 51,000. The company is yet to report Q1FY21 results, which saw the full impact of COVID-19 lockdown.

“The holistic COVID treatment costs are higher than what we are able to realise. We have denied treatment even to a single person during the pandemic. Lower occupancy, minimal surgical work and high fixed costs are leading to losses,” says Yogesh Sareen, Senior Director and CFO, Max Healthcare.

Max attributes lower realisations to government price cap on the treatment.

“It is not possible to change the configuration from COVID to non-COVID on a periodical basis, since the air handling units (AHU) and patient/staff flows are distinctly different for COVID and non-COVID patient areas,” Sareen says.

Scenario no different for others

Of the 3,650 operational beds Fortis Healthcare has in its network, it has allocated around 1,260 beds for COVID-19 patients — that is one out of three beds. Fortis Healthcare is India’s third-largest hospital chain.

Revenues from COVID-19 treatment were approximately 8 percent of hospital revenues in Q1FY21. Hospital business revenue in Q1 FY21 stood at Rs 488.3 crore, a fall of 47 percent from Rs 913 crore in the year-ago period.

“In major cities like Mumbai and Delhi, approximately 50-60 percent of the designated COVID beds are lying vacant as many patients have recovered or have chosen to go under home quarantine since they have only mild symptoms, have no comorbidities (multiple medical conditions) or require no critical care,” says Dr Ashutosh Raghuvanshi, Managing Director and CEO, Fortis Healthcare.

“In such a scenario, we should have the flexibility to reallocate beds to non-COVID patients. Some geographies still have restrictions in allowing the conversion of COVID to non-COVID beds, and we have witnessed a few instances where serving non-COVID patients has become a challenge,” Raghuvanshi said.

Revenues hit

Private hospitals say they are seeing a decline of 30-35 percent revenue, compared to the pre-COVID quarter of Q4FY20.

For instance, some of the high revenue-generators like transplant surgeries have been postponed because of infection risk.

Many hospitals are not expecting full recovery until the end of this calendar year. They are also not expecting the usual 10 percent revenues from medical tourism anytime soon due to travel restrictions.

Hospital executives say COVID treatment hasn’t provided enough cushion to absorb the revenue loss.

“In around 20-50 percent bed capacities across our hospitals in different geographies, COVID cases are contributing only 10-15 percent of the revenue,” says Dr Nandakumar Jairam, Chairman and CEO, Columbia Asia

Hospitals India.

“This is primarily because the rates fixed by the government for all categories of patients are very low and are not enough to cover even the cost of treatment,” Jairam says.

Columbia Asia operates 11 hospitals in India. A majority of them are based in and around Bengaluru.

Metro concentration

Analysts attribute this to the concentration of large hospital chains to a few big metro cities like Delhi NCR, Mumbai, Bengaluru, Chennai, Hyderabad, Kolkata, Ahmedabad, and Pune, where much of India’s healthcare infrastructure is located.

For instance, most of Max Healthcare’s and Fortis’ hospitals are concentrated in Delhi NCR and Mumbai.

Delhi, which reported 3,500-4,000 cases on a daily basis in June, is now seeing less than 1,000 cases a day. Mumbai, too, has seen a steady decline in daily cases from about 6,000 in June to less than 1,000 cases now.

Moreover, Maharashtra and Delhi have capped the COVID-19 treatment costs. In June, the Delhi government capped charges for intensive care unit (ICU) beds with ventilator support at Rs 18,000. This norm will be applicable to 60 per cent of the total private beds in the national capital.

Maharashtra capped the charges for an isolation ward at Rs 4,000 a day. The maximum charge for an ICU has been capped at Rs 7,500 per day, and charges for ventilators are capped at Rs 9,000 a day. This is applicable for 80 percent of beds.

Private hospitals were earlier charging between Rs 40,000 and Rs 50,000 a day for a ventilator. With the price cap, the charges are now about 70-80 percent lower than before.

India has reported 3.2 million COVID-19 cases, and 59,357 deaths. There are about 7 lakh active cases, and it was found that over 80 percent cases are asymptomatic or mild, not requiring any hospitalisation. Most COVID infections are now being reported from Tier-II cities, small towns and villages.

Overcharging allegations
There are allegations of private hospitals flouting price-cap norms, and the

hospitals have denied this.

“There is no opportunity to overcharge as the government has capped prices and all healthcare institutions have to adhere to the prices decided by the government,” said Jairam of Columbia Asia.

“The confusion and feeling that hospitals are overcharging arises because many patients have comorbid conditions which may also require treatment and care in an ICU setting,” he added.

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