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.

The Big Healthcare Challenges in FY 19

As the present financial year draws to a close, I am left reflecting on the challenges the private healthcare services organizations in the country face in the coming year. The present year has been a pretty tumultuous one. The regulatory environment threw up several challenges. The NPPA orders on price controls of devices such as stents and joints impacted the profitability of most private healthcare companies adversely. The DPCO’s orders on price controls on key drugs too are also likely to dent the bottom line of private hospitals. The media brouhaha triggered by two cases one at Fortis Hospital Gurgaon and one at Max Hospital, Shalimar Bagh, New Delhi created consumer distrust of an unprecedented nature. The private sector hospitals were called names and their doctors were addressed in the vilest of terms leading to all around despondency. Private hospitals are now limping back from this assault. The government of Delhi also announced a half-baked scheme for its citizens, which allows them access to private hospitals if the government-owned hospitals put them on a wait-list of more than a month. Finally, in the budget, the union government announced the path-breaking ”Ayushman Bharat”, which is supposed to provide a cover of INR 500000 to a million families across the country.

All these are expected to lead to some fresh challenges for the private healthcare providers in the next financial year.

Regaining Patient’s Trust 

If there is one thing, which ranks higher than any financial matrix of revenue, costs, and profits it has to be the effort to regain the patient trust. The reasons for the loss of trust are many, some genuine and some purely trumped-up, however, most private hospitals see the urgent need to regain the customer trust. Significant investments will have to be made to improve transparency, patient communication, and organizational culture, which will lead to patients trusting their hospitals. This too is a difficult task and will involve a lot of senior management time and effort.

Profitability

The government and the media have quite successively sold a narrative to ordinary citizens of the country that the private sector hospitals are profiteering and that they are out to cheat patients by over-prescribing, over-billing or worse. Thus, they have ascribed themselves the role of the guardians of the ordinary citizens against the rapacious, profit-hungry hospitals. The truth is far more prosaic and indeed worrying for the private sector hospitals. Most of them have seen a shrinkage in their profits, which to begin with were meager. The biggest challenge that private sector hospitals face in the coming year is clearly of ensuring reasonable returns for their shareholders. In an environment, driven by complete distrust between patients and the hospitals, with power-hungry politicians seemingly baying for their blood in what might be an election year, most private sector hospitals are staring at a bleak year ahead. The EBITDA margins are likely to contract. The hospitals will have to thus figure out a way of reining in costs, without compromising on patient care, safety, and outcomes. This is obviously easier said than done and will probably consume most of the bandwidth of the top management of the hospitals.

Managing the Changing Regulatory Environment

Healthcare is finally getting some attention from the government, which in itself is not a bad thing at all.  However, the controls being put on pricing and the schemes like the Ayushman Bharat and similar programs are not at all well thought through. The private sector, however, has no choice but to adapt to the changing situation. The National Health Protection Scheme (NHPS), will be rolled out this year. One is hopeful that it will be backed by suitable technology, which allows private hospitals to handle patients covered under NHPS. The hospitals will need to usher in change to be able to accommodate the large number of NHPS beneficiaries, which may flow into private hospitals. These changes may include modifying the bed configurations in the existing hospital, tweaking systems and processes and creating special areas to handle NHPS patients and create low-cost models, which allows the private hospitals to manage the NHPS patients in high volumes. Other regulatory changes in drug price controls, devices pricing controls and guidelines on re-usage will all lead to significant tweaks in hospital processes.

Managing Media and Consumer Activism

Consumer and media activism is here to stay. An unexpected outcome, a perfectly explainable error of judgment and sometimes a perceived lack of attention can trigger a media avalanche. Much as the hospitals may crib about being unfairly targeted, they will have to learn to live and cope with it. However, this does not mean that hospitals will not take a stand or push-back particularly when they are in the clear. They will have to learn to work with a partisan media and try their best to put out their side of the story. Speed will be of the essence and the communication teams of the hospitals will have to be beefed-up. Social Media too will throw up new challenges and the hospitals will have to learn to respond quickly and have a ready base of loyal supporters who will help defend them against motivated tirades.

These are all unique and new challenges. I am sure something good and lasting will emerge from these as well.

The views expressed are personal