Corporate hospitals expect revenue and margins to surpass pre-Covid times

Non-Covid occupancies, higher average revenue per occupied bed, cost rationalisation driving growth

Better occupancies, higher revenue per bed, and cost rationalisation are pushing corporate hospitals into recovery mode after a particularly gangrenous second wave of the Covid-19 pandemic brought India's public health system to its knees. In fact, the industry expects revenue and margin growth to surpass pre-pandemic levels, despite lower inbound medical tourists.
 
Max Healthcare, for example, has seen August occupancy levels touch 75 per cent. “With August occupancy perched at 75 per cent, occupancy levels have reached pre-pandemic levels. Further, Covid-dedicated beds account for just 1 per cent of the overall occupied beds. We should be able to sustain or outdo 70-75 per cent occupancy levels for the remainder of the year,” says a spokesperson for Max Healthcare.
 
Fortis Healthcare, too, points out that non-Covid occupancies are back to ‘normal’ levels.  Speaking to Business Standard, Ashutosh Raghuvanshi, managing director and chief executive officer, Fortis Healthcare, says occupancies were up 62 per cent in August. Even as September numbers are yet to be closed, Raghuvanshi expects occupancies at around 65 per cent. Barely 2 per cent of occupancies now come from Covid cases.
 
One can expect to clock 30-35 per cent growth in revenue, compared to last year, says Raghuvanshi. Compared to the pre-pandemic period, there should be sub-10 per cent growth in revenue, he adds.
 
“There is still some ground to be covered - international business is in fits and starts due to restrictions. However, domestic business is definitely better than pre-pandemic levels,” says Raghuvanshi.
 
Not just occupancies, average revenue per occupied bed (ARPOB), too, has recovered. From a pre-Covid ARPOB of Rs 1.7 crore, it has now risen to Rs 1.85 crore, says Raghuvanshi.
 
Max Healthcare, too, expects ARPOB to be better in the second quarter (Q2) of 2021-22 (FY22), compared to the preceding quarter.
 
The reason behind the rise in revenue is primarily due to case mix, observe analysts.
 
“This growth is happening because of case mix rather than any pricing change,” says Raghuvanshi.
 
A Mumbai-based sector analyst, however, claims most hospitals have taken price rises from the first quarter (Q1) of this year, leading to growth in revenue.
 
If occupancies are indeed high due to pent-up demand, they will taper off eventually.
 
Hospitals feel otherwise.
 
“There may be some pent-up demand in medical specialties like orthopaedics, given that people had deferred surgeries. But that is not true for other specialties. This growth, therefore, is driven by pent-up demand,” counters Raghuvanshi.
 
Kunal Randeria, analyst with Edelweiss, says the sector is on the mend. “Surgeries and other medical treatments are back. Moreover, hospitals have rationalised costs, allowing better margins,” he adds.
 
For example, in 2020-21 (FY21), Max Healthcare had undertaken several cost-saving initiatives, including material cost rationalisation, personnel cost optimisation, among others. “We had implemented initiatives with annualised savings impact to the tune of Rs 100 crore,” says a company spokesperson.
 
The dive in medical tourism, however, is a cause for concern. Revenue from medical tourism has been down to one-third, owing to travel restrictions, says Max Healthcare.
 
While hospitals expect this to improve as regular international flights resume, some feel there has been revenue redistribution in the industry. For most private chains, international business was around 10 per cent of their overall business.
 
“Full recovery is still some time away, but some redistribution of revenue has occurred. For example, some smaller and regional centres have shown quicker growth than the tertiary care centres. In tier II and III cities, better growth has been seen,” says Raghuvanshi.
 
Standalone hospitals, too, have seen better footfall. But some indicate that their margins will depend on the case mix.
 
“While we see occupancy levels at pre-pandemic levels, our case mix is skewed towards medical cases rather than surgeries. This will impact our ARPOB and margins,” says the chief operating officer of a leading Mumbai hospital.
 
Analysts say vaccinations have driven up revenue in Q1 to a degree. This will slacken in Q2FY22.
 
In the June quarter, Apollo Hospitals clocked Rs 190 crore from vaccines; on this, it recorded a 15-per cent margin, reveals an Edelweiss report. However, analysts say only 40-50 per cent of Q1FY22 volumes are expected this quarter.
 
On the whole, the corporate hospital sector is expected to have better operating margins in FY22, compared to 2019-20, underscores ICRA.
 
The blended occupancy level of Covid and non-Covid patients in the ICRA sample set was 64.2 per cent in Q1FY22, against 36.9 per cent in Q1FY21 and 58.8 per cent in the fourth quarter of FY21. Therefore, growth is not just on a low base, but sequential as well.
 
The ICRA sample set comprises listed corporate hospitals, including Apollo Hospitals Enterprise, Fortis Healthcare, Narayana Health, Aster DM Healthcare (India-business only), Max Healthcare Institute, HealthCare Global Enterprises, and Shalby Hospitals.