Health Check: Apollo Hospital, Fortis Healthcare feel uneasy

Apollo Hospital, Fortis Healthcare, Aster DM Healthcare, others are expected to take a big hit on their performance as pricing cap adopted by them post Coronavirus or COVID-19 outbreak will further pressure their already strained finances.

The move follows a petition filed by an Advocate in a Supreme Court, blaming private hospitals for commercially exploiting the patients and making a “fortune out of their miseries in the hour of national crisis.
Following which, the SC issued notice to the Centre to regulate COVID-19 treatments costs across private and corporate hospitals in the country.
COVID-19 patient were charged astronomical treatment fees in private hospitals, ranging anywhere between Rs 4 lakh for single day to Rs 12 lakh.

The petitions has also sought directions for the private hospitals to treat covid-19 patients “pro-bono” in cases where the hospital has been built on public land or is categorized under “charitable institutions”.
The petitioner pleads directions for the government to issues similar notification as issued earlier under the provisions of Disaster management Act, 2005 wherein a pricing cap was imposed for covid-19 testing in the private labs, which was applicable across the country. Similar cost regulation should be imposed for treatment as well, submitted the petitioner.

Interestingly, these private hospitals have embarked upon expansion in the last three years. Since these are capital-intensive businesses, cash flows take time to catch up which is why most of the tier-1 hospitals companies, their return ratios had declined.

The expansion phase is over in the last one or two years. Major hospitals are earning good margins. Margin expansion is happening in new hospitals with better occupancy rates
It was expected that there will be a meaningful increase in operating leverage as occupancy rises, it was likely to translate into better margins and return ratios while boosting valuations.
However, the fact remains, hospitals will remain overwhelmed by patients inflow amid price caps, their operating leverage will be highly constrained.

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