‘COVID-19 impact assessment for private healthcare sector and key financial measures recommendations for the sector’: EY-FICCI study

The sector is expected to witness short term operating losses to tune of Rs 14,000 to 24,000 crore for a quarter

With the outbreak of COVID-19 in India and stipulated lockdown, the private healthcare sector is witnessing an unprecedented slowdown as per EY-FICCI study titled, ‘COVID-19 impact assessment for private healthcare sector and key financial measures recommendations for the sector’. The study is based on an assessment of private healthcare players in the country to assess the economic impact of the COVID-19 pandemic and provides recommendations on the fiscal stimulus measures it needs in the coming months.

The sector is expected to witness short term operating losses to the tune of Rs 14,000 to 24,000 crore for a quarter. For the hospital sector, which is already constrained with liquidity, onset of such losses will cause cash balances to be completely depleted within a month. Given the capital-intensive nature of the sector, interest coverage ratio (which is already low at 2) will get further constrained to negative 6-9. The revenue for the sector in FY 21 is also expected to be lower by 20-35 per cent (compared to FY 20) resulting in early single digit or negative EBITDA for the full year with annual ROCEs estimated at -5 to -15 per cent.

Kaivaan Movdawalla, Partner – Healthcare, EY India, says, “While the private sector stands fully committed to partner with the government as a national duty, it truly finds itself in a compelling situation to beseech the government for ‘differential’ financial forbearance measures and to be supported well, in order to best utilise its capabilities and capacity to serve the nation in this hour of crisis”

Dr Sangita Reddy, President, FICCI and Joint Managing Director, Apollo Hospitals Enterprises, expressed that “The private healthcare sector in India has stood beside the government firmly to contain the virus and is deeply committed to the war against COVID-19. However, there is an urgent need to consider the healthcare industry’s triple burden viz low financial performance in pre-COVID state; sharp drop in out-patient footfalls, diagnostic testing, elective surgeries and international patients across the sector is impacting cash flow; and the increased investments due to COVID-19; which has impacted the hospitals and laboratories like never before.”

Private healthcare providers and laboratories are currently facing a triple burden unlike other sectors, which makes it situation unique:

 1. The industry was already in a very fragile state in the pre-COVID state in terms of its financial robustness

• Median return on capital employed of ~7 per cent which is lower than cost of capital of 14 per cent, early double-digit operating margins and median profit after tax (PAT) margin of 3 per cent. The sector was also operating on cash balance of only 19 days to sustain expenses. Given the capital-intensive nature of the industry, the interest coverage ratio also stands at only 2.  

 2. Extra-ordinary drop in demand impacting cash flow resulting in difficulties in managing payrolls and fixed costs

• The private healthcare sector has witnessed an 80 per cent fall in patient visits and test volumes and revenue drop of 50-70 per cent in end March.
• Occupancy levels have fallen to a mere 30-40 per cent by late-March vis-à-vis pre-COVID occupancy levels of ~65-70 per cent, which is expected to further exacerbate with the lockdown in April.

3. No / very limited latitude to reduce fixed cost and perhaps accommodate increase in costs in context of infection control and need for personal protection equipments (PPEs)

• While bed utilisation is low, private hospitals are expected to be pro-active and prepared to manage any eventuality emerging from this epidemic situation. Hence, opportunity to rationalise fixed costs is very limited unlike other industry sectors. Increase in costs owing to infection control and PPE also needs to be accommodated.

Dr Alok Roy, Chair- FICCI Healthservices Committee and Chairman, Medica Group of Hospitals shared that, “The financial distress accentuated by COVID-19 lockdown has forced several standalone and small nursing homes in Tier II and III cities to down the shutters. Many others are at high risk of closing down soon since their cash flows have dried up, due to steep decline in patient footfalls, and they are facing liquidity crisis for even sustaining their staff salaries.”

During the time of this pandemic, hospitals and medical professionals from doctors to nurses to support staff, who are the brave frontline soldiers fighting the war against COVID, are facing difficult times. There is an urgent call for action to address the immediate need of the sector and consider the recommendations for financial stimulus for the private healthcare sector.

The study suggests below recommendations for providing urgent financial stimulus for the sector:

• Liquidity infusion- Short term interest free / concessional interest loans to address the operating losses expected for the quarter and immediate 100 per cent release of dues locked with central and state government authorities. 
• 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 medical devices, Extension of time under the EPCG scheme etc.
• Income tax benefits and deferment of statutory liability payments without interest, penalty for a stipulated period (3-6 months)
• Rebate on commercial rate of power for a stipulated period

About study:

FICCI and EY assessed COVID impact on the private hospital and diagnostic sector basis the study of immediate impact in the last week of March 2020, post the nation-wide lockdown:

• Studied median performance across 91 private healthcare players (pre-COVID)
• Analysed March week-wise revenue and occupancy levels of 10 hospitals and five diagnostic chains
• Discussion with 10 healthcare and diagnostic labs to understand post-COVID impact