The Politicians and Private Healthcare in India

Of late politicians of various hues have been paying a lot of attention to the private healthcare sector in the country. Sadly, most of this attention is rather unhealthy, based on their own populist electoral agenda and completely partisan. Let us look at two recent examples. We have had the Prime Minister talking about capping of stent prices and the like, while speaking some time back in London and then more recently we had the health minister of the government of Delhi announcing a slew of measures that the government plans to implement to curb ”profiteering” by the private healthcare players in the National Capital Region.

Even a casual glance at the financial results of private healthcare players in the country will establish the simple fact that far from profiteering, most of them are struggling to make a decent profit on their investments. The EBITDA margins for most of the hospitals are in the range of 7%-15% and the return on capital employed (ROCE) is mostly in single digits even after a decade of hospital operations. The investors who set up these hospitals as ”for profit” businesses, would probably be far better off if they had just chosen to keep their money idle in a bank or may be invested in some other business.

The government and the pricing authority (NPPA) tend to look at hospital profitability through a completely distorted lens. Media stories inform readers that hospitals are making jaw-dropping profit margins on things like syringes, gloves and other sundry drugs and medicines. While these items are always sold on the MRP, the hospitals have also been baselessly accused of colluding with the manufacturers of these items in inflating the prices. Even if for a moment one assumes this is true, the simple fact is that a hospital’s profitability cannot be judged from the profit margins on sundry consumable items.

The profitability of a hospital has to be established by looking at the revenue that it earns and the entire cost structure that the hospital carries. The huge upfront cost of developing hospital infrastructure, the costs of all the clinicians and the medical staff employed by the hospital, the cost of all the non-medical services (such as housekeeping, the front office and F&B) and the cost of sophisticated equipment and instruments for diagnosis and treatment of the patient forms the bulk of the hospital cost. The hospitals incur these costs right at the start of their operations and continue to make losses for several years before they can hope to break-even.

Even on the revenue side, private hospitals are required to cater to patients such as those covered under the CGHS and the ECHS schemes of the government. These patients enjoy cashless services at the point of delivery, with the government paying a subsidized amount to the private hospitals later on. This is largely because the government’s own hospitals do not have sufficient infrastructure to take care of these patients. Payments from the government are low, sporadic and endlessly delayed. These patients, however, receive the same level of medical care as any non-subsidy enjoying patient and hospitals incur the same costs.

On one hand, we as consumers continue to demand more from our healthcare service providers including better equipment, greater patient safety, higher levels of infection controls, better-trained doctors and ultimately superior patient outcomes, it seems we are willing to pay less and less for all of this. Clearly, this can not work. The hospitals have to recover these costs for them to be financially viable.

Politicians whipping up unnecessary hysteria by claiming that hospitals make huge margins on say a cotton swab and then presenting themselves as knights in shining armor out to protect the general public from the depredations of unscrupulous private sector hospitals is just playing to the galleries. It is actually the politics of the worst kind. A far better approach would be to increase healthcare expenditure and invest in creating better public healthcare infrastructure. Partnering with the private healthcare players in a fair and equitable manner would go a long way in improving healthcare services to the citizens of our country.

Private Hospitals and clinicians provide the bulk of healthcare in the country. Investors who have put their money in these businesses must not be denied a reasonable profit just because politicians have elections to fight. If the government continues with this agenda, they will end up destroying private healthcare in India.

And that truly would be a very high price for all of us to pay.

The views expressed are personal.

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