Healthy margins elusive for health care business

Fortis, recently accused of overcharging patients by 25 to 1,208% on items used in certain treatments, reported a loss last year

The ‘astronomical’ three-digit profits that private hospitals are said to be extracting from patients on items like syringes and other consumables fail to show up in the single-digit profit margins earned by the top health care chains. 

Leading health care chain, Fortis, recently accused of overcharging patients by 25 to 1,208 per cent on items used in certain treatments, reported a loss last year. The company’s Ebidta margin is in the range of 5-6 per cent. Fortis Healthcare has not declared any dividend to shareholders for the past several years and it sits on a debt. 

Fortis said one should look at the overall business performance and not the individual price of a single item as that shows the margin/profit out of context.    

“Fortis lost over Rs 100 crore last year. One may call us greedy if we make Rs 100 crore one year and want to make Rs 200 crore. When you are losing Rs 100 crore at PAT level and want to lose Rs 80 crore that it not greedy, it is survival. Our operating Ebidta is 4-5 per cent. Health care is not one of the most profitable industries by any stretch of imagination,” said Bhavdeep Singh, chief executive officer at Fortis Healthcare. 

Chennai-headquartered chain Apollo Hospitals earned a profit margin of 4.4 per cent during FY17, against a margin of 6 per cent in the previous year. Hospitals also continue to see a rise in operating costs. Apollo saw its operative expenses go up by 17.3 per cent to Rs 3,360 crore in FY17 and administrative and other expenses moved up by19.4 per cent to Rs 1,365 crore. Total expenses (including employees) went up by 17 per cent to Rs 5,667 crore, higher to the 15.3 per cent growth in revenue which stood at Rs 6,441 crore. Apollo also had a debt of Rs 2,721 crore at the standalone level as of March 31, 2017. 

It is interesting to note that Indian hospital chains have occupancy lower to hotels, also it is a manpower and asset intensive business. Data from HVS shows that the average occupancy at branded hotels in the country stood at 65.6 per cent in FY17. By comparison, occupancy at Apollo’s 32 hospitals was 64 per cent. Fortis had an occupancy of 75 per cent. The fact that hospitals have a lower occupancy in spite of a high disease burden shows that affordability is an issue for average Indians. Access is also an issue especially for those in the rural areas. “The sector in India is growing at a rapid pace; however, we still have a long way to go to provide affordable accessible high-quality health care to the common man,” said Singh.

  

At the same time, India is short of bed density at one bed per 1,050 patients, well below that of other countries and below the global median of 2.9 beds per 1,000 patients. It is also estimated that an additional 3 million beds would be needed to achieve the target of 3 beds per 1,000 people by 2025. These statistics indicate the huge health care infrastructure gap in the country.

But where will the investments come from? Irrespective of its shortcomings and gaps, it is a reality that private health care sector accounts for 80 per cent of the total health care market. The public health care delivery cannot be an alternative and new infrastructure will continue to be dominated by private players but only when they are able to get adequate returns. 

“If the health care industry does not give returns, nobody will invest in it. I am personally in favour of a margin cap but it has to enable investors to invest. Without investments technological advances will not be possible. If I have to set up a 200 bed hospital, the cost per bed is Rs 1.3-1.5 crore and I will need Rs 250 crore. If I cannot earn Rs 40-50 crore a year, where is the case for investment,” asked Singh.
 

Series concludes.