Nirmalya Gupta, MD, Protiviti Member Firm for India deciphers the findings of Protiviti India’s recent Business Resilience Barometer. While the revival is anticipated to begin post attainment of peak cases beyond September 2020, when the COVID-19 cases start showing a downward trend, he suggests five alternative short and medium term strategies for healthcare providers to keep the growth engine moving, in an interaction with Viveka Roychowdhury
According to Protiviti India’s Business Resilience Barometer, 40 per cent of the respondents from the Healthcare and Life Sciences industry either foresee no disruption or anticipate disruptions between 1 to 3 months. Now that we are in the middle of Q2FY21, what is the sense you are getting? How has the hospital sector in India dealt with the disruptions and is the sector seeing a revival, though it may be slow at first?
As a recovery path for healthcare organisations, there are many questions that are surrounding these unprecedented times and the organisations are continuously trying to determine what their pathway to recovery will look like. For example, do organisations have enough supplies for patients and staff? Is the crisis response bearing the fruit? What do the financials look like?
It is significant to note that 60 per cent of our survey respondents foresee that the disruption to healthcare industry is going to last between 3-12 months. With at least 20 per cent of survey respondents acknowledging >50 per cent impact on profitability and 29 per cent respondents stressing on >50 per cent impact on cost, the road to recovery is an uphill task.
Based on our recent discussions with various healthcare organisations, it is safe to say that things will not go back to what they were prior to the COVID-19 pandemic in the immediate future. However, we see that the disruption is continuing to affect the operations and the revival is anticipated to begin post attainment of peak cases beyond September 2020, when the COVID-19 cases start showing a downward trend.
36 per cent respondents from healthcare and life sciences sector envisage a negative profitability impact of over 25 per cent. Hence there will be areas that they will consider cutting costs. Thus when looking at areas under which cost reduction will be considered, the highest number of respondents from this sector, 86 per cent respondents from Healthcare and Life Sciences industry, see human capital as an area of cost reduction. 54 per cent expect 0-10 per cent layoffs as well. Yet 69 per cent of respondents from healthcare and life sciences industry expect hiring to revive after more than 60 days. How do you explain this? Will they let go of current employees and hire those with different skill sets for the post pandemic era? Are they not considering up-skilling initiatives for their employees?
Basis our interactions with various healthcare organisations, we believe that layoffs will not be a common trend across the industry and it will depend on how each organisation perceives it. Even though some organisations may be considering layoffs for the time being to reduce the impact of fixed cost, once the situation normalises they will be pressurised to re-hire the personnel. This may eventually lead to additional hiring cost and investment in training those personnel.
Are these sectors looking at automation as an enabler to reduce costs? 36 per cent said automation is a significant enabler, whereas 43 per cent said automation is a moderate enabler.
Yes automation will be order of the day going forward, which needs to be explored by organisations as “digitisation/ digital health”objective. This situation (pandemic) has accelerated the digitisation need thought process with an increased zeal.
Organisation can consider using technology to reduce or optimise costs across various operations namely, automating repetitive processes such as compilation of patient records, invoicing etc. and setting up systems and processes for managing and reducing healthcare-associated infections (HAI).
80 per cent of respondents from this sector industry highlighted moderate dependency on MSME sector. Has the government’s relief packages announced for the MSME sector, like collateral free loans, equity infusion through Fund of Funds, etc. made a difference to working capital and cash flows in the MSME sector as yet?
The announcement of government is a right step towards addressing short term challenges in meeting the working capital and cash flow needs of the medium to small healthcare service providers. However, it will take some time to show results in the coming days and the effect may not reflect immediately. It is related to demand and consumption movement post COVID-19 peak period.
Half of the respondents from the sector industry foresee challenges regarding working capital in the next six months to a year. Any suggestions on how they can bridge this gap?
Healthcare organisations are facing major tasks to manage working capital requirement due to delayed revenue realisation. The sector is facing severe liquidity constraints in several economies, with cash balances available to cover up only a few weeks of operating costs and government receivables as a major proportion of the revenue. Some of the important measures one can adopt to address the challenges to bridge this gap are:
- Exploring short to medium term credit line with bare minimum financing cost
- Tighter focus on collections
- Robust liquidity forecasting
- Look to obtain promoter funding
- Wherever possible and applicable, utilise government based funds
What steps can hospitals and diagnostics companies take to reduce the overall impact of the disruptions triggered by the COVID-19 pandemic?
As the world deals with containing the COVID-19 pandemic, the global economy is facing multiple challenges. The situation has now escalated beyond demand compression, operational disruption and credit unavailability to ensuring basic survival of business across sectors.
This pandemic is also a stress test on the global health infrastructure, especially for countries with limited critical care capacity in comparison to their peer group. The current healthcare system is getting strained on multiple fronts viz. depleting revenues, margin shrinkage, and working capital and liquidity issues.
In the current situation it is important for the healthcare stakeholders to assess the short-to-medium term effect of this crisis and devise strategies to reduce the impact.
Healthcare providers can look to adopt various alternative short and medium term strategies in order to keep growth engine moving viz.:
- Development of alternative revenue streams
- Ramping up service lines such as pulmonology and internal medicine, which are expected to see increased higher patient inflow in the new normal
- Service providers can consider empanelment as a COVID-19 testing centre, which can help them even out the losses incurred due to fall in volumes
- In the medium to long run (next three to six quarters), diagnostic centres can focus more on services such as sample collection from the patients place of residence, which can address the patients fear of catching infection at the diagnostic centres and also the rise in patient foot fall
- Consider shifting from radiology services to pathology related services