Hospitals recovering from weak Q4FY20, but trust at all-time low

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Will better margins translate into unaffordable care for patients?  Will unscrupulous labs and hospitals continue to fleece patients?

Earnings call discussing Q4FY20 results of hospital chains in India show that while hospital managements are stepping up and doing their bit for COVID-19, they have also found ways to cut costs and curtail losses. Besides deferring CAPEX, at least two hospitals have introduced pay cuts to reduce costs. At Fortis Healthcare, several senior personnel have taken a temporary voluntary salary cut while Narayana Hrudayalaya (NH) has renegotiated contracts with doctors to make the pay more variable, in addition to a 15-20 per cent pay cut.

While hospitals are stepping up and doing their bit, they have also found ways to stem the losses. For instance, Fortis currently has 1000 dedicated beds for COVID-19 with nearly 60 per cent occupancy while non-COVID-19 beds have nearly 40 per cent occupancy taking total occupancy to 45 per cent. At these levels, Fortis claims to be nearing a break-even for the hospital segment.

The new management at Fortis had already deployed cost control initiatives before the COVID-19 pandemic and has now deferred CAPEX plans, as well as reduced approximately 25 per cent costs at the corporate level. The COVID-19 pandemic has thus, forced hospital managements to re-examine costs and prioritise CAPEX. Can this be a habit for the new normal? How can they increase capacities, while keeping costs low? Will we see new models emerging?

In spite of the muted Q4FY20 results, ICICI Securities has maintained Buy recommendations for Aster DM Healthcare, Fortis and NH, as they expect performance to improve with Average Revenue Per Occupied Bed (ARPOB) already showing an uptick from the lows of April, with normalcy from Q3FY21 onwards.

The Buy recommendations and slow pick-up post-April will come as a relief for Aster, Fortis, NH and other hospitals, as well as investors in this segment, but will better margins translate into unaffordable care for patients?

Social media has a plethora of patients detailing how patients and caregivers struggle to first get admitted and then once cured, are faced with ‘astronomical bills’. Many hospitals have gone public with a break up of their expenses, explaining how the costs of PPEs and more stringent disinfection procedures add to the cost of treating COVID-19 patients. This transparency is indeed welcome. State governments too have moved to cap treatment but without the means to monitor more closely, it will be up to hospitals to self-regulate.

There are reports of diagnostic labs and hospitals colluding to fleece patients under the cover of COVID-19. To cite just one example, according to an FIR filed by three patients on June 23, the modus operandi of Tuli Diagnostic Centre, Amritsar is to target ‘elite and rich well to do patients including foreign NRIs’. These patients are deliberately diagnosed as COVID-19 positive even though they are actually negative. They are then allegedly directed to EMC Hospital, Green Avenue, Amritsar for ‘treatment’. After seven days of treatment and running up medical bills ‘in lacs’, the same diagnostic lab tests them again and this time, it is a ‘negative’.

Besides high medical bills and the ‘agony and trauma’ that these patients and their families went through, what is horrifying is that some patients admitted with such doctored COVID-19 positive reports went on to get infected under treatment at EMC Hospital.

There are many more such accounts doing the rounds on social media and one can only hope that these cases are investigated and such activities penalised. As state governments cautiously allow citizens to return to their work lives, there are bound to be surges of infection in new hotspots. Even as more hospitals offer home-based COVID-19 care packages and increase telehealth initiatives, the healthcare sector will have to address the trust deficit by and be as transparent as possible.

Aster DM HealthcareAverage Revenue Per Occupied BedCOVID-19COVID-19 testingEMC HospitalFortis Healthcarehospital CAPEXTuli Diagnostic Centre
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