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The triple economic burden faced by the healthcare industry

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Hony) Brig Dr Arvind Lal, Adviser, FICCI Health Services Committee and Executive Chairman, Dr Lal PathLabs shares his views on the economic burden being faced by India’s healthcare sector due to COVID-19 pandemic, and the ways to release this burden

Healthcare has been one of the largest and fastest-growing services sectors in India contributing to both revenue as well as employment. Being the fourth-largest employment generator and growing at a CAGR of 16 per cent, it was expected to reach $372 billion by 2022. The hospital industry alone was expected to grow at a CAGR of 16-17 per cent to reach Rs 8.6 trillion ($132.84 billion) by FY22 from Rs 4 trillion ($61.79 billion) in FY17. The diagnostics industry in India was valued at $4 billion in FY18-19, wherein the share of the organised sector is almost 25 per cent in this segment (15 per cent in labs and 10 per cent in radiology).

In the last few decades, the private healthcare providers have stood solid as pillars of capacity and capability, accounting for nearly 60 per cent of all inpatient care and have been responsible for improving the quality of healthcare tremendously. Unfortunately, despite its tremendous contribution to the economy, it has been facing multi-faceted challenges from the pre-COVID-19 times which have only aggravated with the pandemic.

Some of the challenges include highly competitive markets, low profitability, decreasing investor interests, rising costs of human and other resources, lower consumer spending, unviable price caps, unpredictable regulatory environment, etc.

Private sector’s contribution to COVID-19 management has been truly exemplary. Private hospitals and nursing homes constitute more than 60 per cent of beds (at 8.5-9 lakhs), 80 per cent of doctors and 60 per cent of in-patients in India. In view of the current pandemic situation, the private healthcare sector has assured and provided its complete support to the government for combating the same. It has been communicated during several consultations with the Union Health Minister; Health Secretary, NITI Aayog, NHA and ICMR by leaders of all verticals of healthcare of their willingness of sharing best practices of the private sector and offering their help to the government in this hour of need.

To ensure complete preparedness for safety in the healthcare facilities and provide the best treatment to the patients, private hospitals and nursing homes have been investing heavily in additional manpower, equipment, consumables and other resources to combat COVID-19. Many private hospitals are now COVID-dedicated hospitals, supporting the government with human resources, equipment as well as infrastructure. 147 private labs are contributing to COVID testing, which is 40 per cent of the total testing labs in the country. Private hospitals have also spent heavily on creating isolation facilities, preparing ICUs and CCUs, constructing fever clinics and training their workforce on dealing with COVID cases.

Moreover, FICCI has been the conduit between the government and industry to facilitate mobility and logistics for hospitals, Med Tech, and pharma companies, connecting the suppliers of essential medical supplies like PPEs, masks, ventilators, etc.

Challenges faced by the healthcare industry in India

While the government is taking relief measures to release the financial strain from sectors like hospitality, tourism, and construction, a lot more needs to be done for the healthcare industry which is in urgent need to be relieved from the triple burden viz:-
1. The omnipresent financial challenges– Despite >60 per cent share of bed capacity in the country, the private healthcare sector’s financial performance was severely constrained even in the pre-COVID state.

2. Increased investments made for COVID-19 preparedness– To ensure infection prevention and control in the healthcare facilities and provide best treatment to the patients, private healthcare providers have been investing heavily in additional manpower, equipment, consumables, PPE and other resources to combat COVID-19.

3. Reduced revenues due to sharp decline in patient footfalls across the sector, whether it is for out-patient services, diagnostic testing, elective surgeries or international patients.

As per the FICCI-EY report on the economic impact of COVID-19 on the healthcare sector, the private hospitals and laboratories which were already grappling with several challenges will further witness acute crisis due to COVID-19. The pandemic and the lockdown have resulted in a fall in occupancy levels to a mere 40 per cent by late-March vis-à-vis pre-COVID occupancy levels of ~65-70 per cent and has been reduced further in April-May. The impact on diagnostic labs is even worse with almost 70 per cent fall in patients and revenue.

Furthermore, reeling under financial stress caused by the lockdown, several stand-alone labs and small nursing homes in tier-II and tier- III cities have been forced to shut down. Many others are at high risk of closing down soon due to a decline in patient footfalls, liquidity crisis and will take at least three quarters to revive.

Immediate steps needed to release the
burden

There are rising concerns amongst stakeholders in the health sector on continuity of essential healthcare services as the pandemic weakens health systems. It is imperative that the government considers some specific relief to the sector to support in its functioning, including:

1. government support through liquidity infusion for financing of the operating losses through short-term interest-free/concessional interest rate loans to address the liquidity gap to the tune of Rs 14,000-Rs24,000 cr, is required for the sector.

2. indirect tax reliefs/exemptions/waivers like recoup amount equivalent to ineligible GST credits paid on procurements for a stipulated period; customs duty/GST exemption on essential medicines, consumables and devices for treatment of COVID patients; waiver or reduction of health cess on all medical devices required for COVID-19, extension of time under the EPCG scheme, etc.

3. rationalisation of GST for healthcare services at zero per cent or five per cent, instead of the current exemption from GST. Due to the exemption, hospitals and labs cannot claim input tax credit, while cost of several input products and services has increased in the GST regime.

3. income tax benefits and deferment of statutory liability payments without interest, the penalty for a stipulated period (three to six months).

4. providing at least 50 per cent rebate on the commercial rate of power for a stipulated period to support sustenance of hospitals and labs.

5. companies engaged in healthcare services which have unutilised MAT credit be allowed to also avail the reduced corporate tax regime of 25 per cent.

6. subsidy @ 25 per cent of salary for healthcare staff for the next three months.

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