Covid-19 impact: Private hospitals running losses, despite 'high' prices

Max Healthcare tweeted a rate card in June indicating the minimum cost of various COVID-19 treatments at one of its Delhi hospitals. The cost for ICU with ventilator was set at Rs 72,500. Eight days later, the Delhi government said that private hospitals in the national capital could not charge more than Rs 18,000 for ICU with ventilator--Rs 54,500 less than Max Hospital’s rate card price. Meanwhile, COVID-19 treatment in a government hospital is largely free.

During the ongoing pandemic, this stark difference has rekindled the debate over the cost of private and government healthcare: How is it that private hospitals, despite their exorbitant bills, claim that they are charging patients their best, most reasonable price while government hospitals charge little to nothing? How do government hospitals absorb this heavy cost?

IndiaSpend has investigated various aspects of the distortion in healthcare costs during the pandemic in its series ‘The Price of COVID.’ In our seventh report in the series, we speak to business leaders from the private healthcare sector, people who run advocacy agencies for private hospitals, and public health advocates to understand the reasons for the high costs of private healthcare in India during this pandemic.

Decoding balance sheets

Indian companies have started filing financial results for the first quarter (April to June) of the financial year 2020-21, the “COVID quarter”. During this period, all businesses were impacted by the countrywide lockdown that started in March and began to gradually lift from June 1 onwards.

IndiaSpend studied the balance sheets of India’s leading listed private hospitals, like Narayana Hrudalaya and Fortis Healthcare, to understand the impact of COVID-19 on their revenue and net profit. The filings show that many listed private hospitals have taken a hit during the COVID-19 quarter compared to the corresponding quarter in 2019-20.

For example, the total income from operations of Fortis Healthcare fell by Rs 532.4 crore or 46.8% (from Rs 1,138.3 crore in April-June 2019 to Rs 606 crore in April-June 2020). Consequently, they reported Rs 178.9 crore net loss in the COVID quarter, compared to Rs 67.8 crore net profit in April-June 2019.

Narayana Hrudayalaya, which is smaller than Fortis Healthcare by revenue, also saw a dip in its total income from operations, of Rs 383.9 crore (from Rs 777.4 crore to Rs 393.5 crore). Consequently, they reported a net loss of Rs 119.7 crore for the COVID quarter compared to Rs 30.3 crore net profit in the same quarter of the previous year.

The trend persists for smaller and mid-sized listed hospitals such as Kovai Medical and Artemis Medical Services. Kovai Medical saw its total income from operations fall from Rs 165.4 crore to Rs 129 crore, while Artemis Medical Services posted a Rs 73 crore drop in revenue year-on-year from Rs 135.7 crore to Rs 62.7 crore.

Meanwhile, Breach Candy Hospital, a private hospital in South Mumbai with over 200 beds, said in July that the hospital might have to shut down if the Maharashtra government regulated what they charged patients beyond August 31.

A corporate explanation

The private healthcare sector in India is not homogenous. Besides large corporate hospitals in big cities, private healthcare also includes thousands of clinics, nursing homes and single-building operations across the country.

In IndiaSpend’s interviews with people from the corporate healthcare sector, a few common complaints came up which, these representatives said, explains why they need to charge higher prices: The COVID-19 lockdown meant that people postponed their elective surgeries; it also dried up the usually steady inflow of people with chronic illnesses that need regular in-facility interventions such as dialysis, chemotherapy, blood transfusions, etc. Due to the shutdown of international flights, foreign patients also stopped visiting India for surgeries.

The additional need to sanitise the premises and give protective gear to healthcare staff added a new element to their costs. The staff had to be regularly quarantined, making the workforce sparse, and some hospitals had to give monetary bonuses to staff to encourage them to come to work despite the risk. Finally, the government’s decision to clamp down on prices and force hospitals to reserve beds for COVID-19 also hurt their bottomline.

Max Healthcare was staring at a tough financial situation due to two months of India’s lockdown, Max Healthcare chairperson Abhay Soi told IndiaSpend in July. “How can we be accused of profiteering on the one hand but also show losses on the other? These losses will show up in the audited financial statements of all hospitals soon.”

A common explanation by hospital executives is that they do not get any financial help and must generate their own revenues and profits. “Please understand, public hospitals get crores of rupees in budgetary funding through tax money. If we had got that kind of money to cover our costs, we could also charge less,” said a senior executive of a corporate hospital, on condition of anonymity. “The public is upset with private hospital bills because they pay for it at the point-of-care itself, whereas, they do not feel that pinch in the public sector because we all pay tax money, directly or indirectly, over time.”

India’s central government budget estimate for the health ministry is Rs 67,111 crore (including for research). This is apart from state government budgets for healthcare. Many state governments also have schemes, such as health insurance schemes, which also reimburse the private sector for treatment of those who cannot afford it.

Costs have also seemed high in the private sector because the understanding of COVID-19, treatment protocols and the government’s clinical guidelines have evolved slowly, said Dilip Jose, CEO of Manipal Hospitals. When the government finally came up with price regulation, it was “variable, lacking in a sensible algorithm and without uniformity on what should be included and excluded in pricing”, he added. (Read IndiaSpend’s report on the arbitrary price caps across states here.) “The cost of providing healthcare is different in private and public sectors and thus pricing is different,” said Jose, echoing Soi’s argument.

Fortis Healthcare’s revenues from COVID-19 treatment accounted for 8% of its revenues so far, the group’s officials said in a media briefing in August. Its bed occupancy rate in pre-COVID times was 65-70% but had slumped to 51% in July.

In Narayana Hrudayalaya’s 2019-20 annual report to investors, chairperson Devi Shetty made the same arguments as his colleagues in other corporate hospitals. “Your company has undertaken multiple rounds of operational consolidation and cost-cutting measures across every department to ensure that business remains viable,” he said. All this was necessary because patients have delayed elective surgeries or do not have cash in hand to pay for it, he added.

However, things are already looking up for hospitals such as Fortis and Max. Fortis officials, in August, confirmed that there was an uptick in their patient load and revenues. Max Healthcare’s “liquidity and balance sheet has not been impacted due to COVID-19” in August, Soi told CNBC-TV18, adding that while pre-COVID occupancy levels were at 70-75%, they had fallen to 65% during the pandemic. “The worst seems to be behind us,” he said.

The prognosis

“The corporate hospitals’ lament with their balance sheets does not impress me. If the sector is so unviable for them, they should shut shop,” said Yogesh Jain, a doctor and founder member of Jan Swasthya Sahyog, a non-profit hospital in rural Chhattisgarh. “Clearly, something makes it viable for them. Their prices are high because they have been looking for business in this COVID crisis.”

“They charge everything from an individual patient. We have seen that in how they billed each patient separately for PPEs during the pandemic. This is how they inflate costs, recovering everything from every patient, many times over,” said Jain, questioning the billing practices of private hospitals. (Read about IndiaSpend’s investigation into over-billing of PPEs in private hospitals.) Jain also questioned private hospitals’ complaints about quarantining their staff when even public hospitals have had to do the same with their staff.

There’s no question that private hospitals big and small have taken a financial hit during the early months of the pandemic, said a healthcare analyst at a multi-national advisory firm in India. “We only have the data from the financial filings of corporate hospitals so we know how they have been affected. But thousands of smaller hospitals in big cities and small cities have taken a hit and may not recover. We don’t know the extent of this hit because these are not listed companies,” he said, requesting not to be named.

He expects big corporate hospitals to tide over this and recover by the end of this year, but believes the pandemic has exposed the weaknesses of smaller private hospitals and public hospitals, too.

Support for affordable public health, in fact, comes from a surprising quarter--the private sector itself. “I am sorry to say that privatising healthcare is not the solution for a country like India. No matter how much a private hospital reduces the treatment charges, they simply cannot treat a patient with no money in his pocket,” said Shetty in his note to investors in the 2019-20 annual report.