How COVID-19 crisis will enable healthcare leaders to reinvent business models

The COVID-19 pandemic has caused immense disruption on the health and economic front. While the healthcare sector takes charge to remedy the damage, there are new factors that are greatly impacting financial decisions and overall business viability. Dr Alok Roy, Chairman- FICCI Health Services Committee and Chairman, Medica Group of Hospitals, explains the fiscal issues that lie ahead and urges hospital CEOs, CFOs and government to make some tough choices, in a conversation with Raelene Kambli

Due to the current health crisis in the country, many healthcare services seem to witness a business shock. Would you elaborate on the current situation within the hospital sector?

Bed occupancy across all major hospitals has plummeted to 20-25 per cent and the average revenue per operating bed (ARPOB) has dropped by 30-40 per cent. The overall impact is expected to be in tune of 15,000 to 20,000 crore for the private sector alone and as a result of such severe losses, cash flows have already started dwindling. Most healthcare organisations in the country have invested heavily in preparation for COVID-19 over the past few weeks and are now under tremendous fund crunch. The industry will need immediate financial support to survive; else we will see many hospitals shutting down soon due to bankruptcy. The situation is even worse for a small nursing home in tier-II and tier-III cities, some of which have already closed down due to the impact of lockdown.

In the coming times, healthcare-spending growth will increase consistently outpacing economic growth.  This will create another fiscal challenge in future. How do you think India could reverse this situation or at least improve it considerably? How can the healthcare sector contribute to doing so?

Healthcare spending is a function of an individual’s health-seeking behaviour and their ability to pay. The present circumstances have adversely impacted both. Due to fear of catching infections and overall lack of liquidity in terms of regular cash flows, even people with reasonable health-seeking behaviour are avoiding treatment unless it becomes an emergency. This is likely to continue for the foreseeable future. Moreover, due to lack of adequate testing in the community, every patient walking into the hospital will have to be considered as a potential COVID-19 positive patient from the point of safeguarding the treating doctors and nurses from getting infected. The costs associated with the use of PPE for staff is likely to be significant in the times to come.

Hospitals, Insurance companies as well as Central and state governments are still grappling to understand the disease dynamics, its evolution patterns, treatment protocols and treatment costs therein. Clearly, till date, India has been fortunate compared to many western countries, in terms of the quantum of the disease, and hopefully will continue to be so. Nevertheless, COVID-19 surely will not be the last such epidemic that we are likely to encounter during our lives. Hence, one will have to quickly learn from this episode and get prepared for the future.

Even before the recent health crisis, some observers had begun to contemplate the rising healthcare inflation rates. What is your opinion on this and how does that impact the healthcare business?

Healthcare traditionally has been a low EBITDA sector and inflation has always been a concern. It only aggravates under such a pandemic scenario due to a significant fall in revenue. Healthcare sector in India is one of the top five employers. Yet, it has been constrained severely in terms of liquidity. This is unlikely to get corrected in the near future unless there are supporting policies from the government.

Do you think by measuring healthcare value and putting a sharper focus on health system productivity will help in finding ways to meet additional demand while retaining control of expenditures in future?

The private sector will have to reinvent itself in light of such a catastrophe. One will need to stay focussed, accept lower-income, trimmed manpower and accept lower margins. This will be the new mantra of business for many years to come. This will become the new normal.

In future, what will be those tough choices that the government and industry will need to take in order to improve India’s healthcare system?

There will be a rise in in-patient volumes, albeit with low paying abilities. Healthcare delivery costs will go up and there will be a risk of quality getting compromised, this will take a year or two to settle down. Government’s spend is less than 1.5 per cent of the GDP. India’s healthcare sector has historically been underfunded in comparison to its peers. Italy, the US and China have 3.2, 2.8 and 4.3 beds per 1,000 people, compared to one bed per every 1,000 Indians. In the medium and longer-term, the government will have to develop a strategy to fight such epidemic and urgently allocate adequate funds towards such health sector reforms to strengthen government-run healthcare facilities and train adequate human resources at district and sub-district levels.

What will be the new pathways by which healthcare companies will find sustainability in future?

Healthcare organisations will have to stick to their core competencies, trim manpower and rationalise all possible costs to be able to survive. New models of care delivery like no-frill healthcare facilities, ambulatory care and home healthcare, that would have low operational costs but higher efficiencies would become more suitable in such a scenario. Moreover, the use of appropriate technologies and telehealth would need to be emphasised throughout the continuum of care.

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