Counting Pennies: The Financial System behind India’s Healthcare

An insight into the finances that drives the industry responsible for a healthier tomorrow. Are hospitals and clinics actually making as much as you think?

And in a utopian world, this would work — who wouldn’t spend Rs.165 a week on invincible healthcare. But in the real world apples aren’t a long term answer to health issues. Or even a short term one! Hospitals and clinics, however, are the answer to healthcare issues.

Hospitals need to be well-equipped, well-staffed and well-managed to meet the demands of the 21st century and the only way to ensure a hospital fulfils this checklist is by managing their finances.

Health economics and finance are the cornerstones to ensuring a better quality of health care. These fields look into the effectiveness, cost, efficiency, and behavior in the production and consumption of healthcare.

Nevertheless, it’s impossible to put a value on health and healthcare. It’s unimaginable to live a sustainable life without good health. Some even say ‘Health maybe Wealth’; but health care hasn’t made many rich. Take the case of ‘Fortis Healthcare’, a new chain of hospitals which started in 2001. In 10 years they amassed a debt of Rs. 6,511 crores and were forced to sell their assets in Singapore, Vietnam, Australia and Hong Kong to bring their debt down to Rs. 632 crore.

Financing is hard to come by in an industry that makes no profit. According to Mr. Amit Mookim, MD (South Asia), IMS Health,

”a successful investor needs long-term vision and a defensible proposition rather than an eye for supernormal profit in healthcare. Some features that attract funding from venture capitals and PEs are scalability of projects, defensible propositions, ability to emerge as a leader and disruptive capacity of the model,” he said.

“There is a need for cheaper capex financing mechanisms on lines of infrastructure development especially when we seek building of medical colleges and large format hospitals. Longer tenure loans with softer rates will help,”

So what makes this vital industry prone to such loss? Simply put — massive uncertainty and geographic disparity. No one can predict the next outbreak of an epidemic and no one knows what it will be or where. Add this to the forever increasing prices of the physicians and nurses services market, lack of adequate financing in the healthcare market, the competition due to privatization of the healthcare industry, investments into better technology, ancillary services and specialized equipment; it comes as no surprise that the industry as a whole, spends more money than it recovers. “India’s problem is geographic disparity of healthcare assets in both qualitative and quantitative terms…South and West being better than North and East. “ says Dr. Desai.

The above table highlights the economic trends across some major hospital chains. In most cases, total revenue is almost the same as total expenditure; implying no significant profits. Assets are a key for growth in hospitals and most profits gained go back into asset management and developing a better infrastructure to compete at a local and global level.

From the mid-1980’s to the present, Indian healthcare has seen a massive shift from public/government facilities to private ones, owing to the numerous government subsidies provided to private health providers and the opening up of the Indian markets during the 80s and 90s. Public hospitals have the ability to provide medical treatment at subsidized rates whereas private hospitals have an obligation to their investors to generate profits. Although public hospitals charge roughly, on an average, 4 times lesser than private hospitals according to the Economic Survey 2015–2016, the survey added

“the availability of such personnel to meet various needs of the health sector is a huge challenge in India. The shortage of specialists, doctors, staff nurses, anesthetists, and others, adversely affects the outreach of health services, especially in rural areas.”

The recent GST bill has also had an adverse impact on the affordability of healthcare. Although healthcare is exempt from taxes, under the GST the cost of ancillary medical procedures and services have been put under the 12% — 18% slab. What has taken the biggest hit is the pharmaceutical department. Till now life-saving drugs that treat diseases like diabetes, AIDS, malaria, and tuberculosis had been exempted from excise and customs duties, with only a few states charging five percent tax on them; but GST has now slotted them compulsorily under the five percent slab, while categorising formulations into the 12 percent slab (up from nine percent) and APIs under 18 percent. Operating costs have also come up due to the increase in taxes on surgical items and post-surgical items such as syringes and wheelchairs increasing from 5% — 12% and even 18% in some cases.

Private hospitals have also developed a black mark thanks to their need to profit. At the crossroads of corporate hospitals, pharma companies, and profit, one finds ridiculously priced healthcare capable of turning a king into a pauper. “Prevalence of commission practice cuts into margins and government crackdown on this in states like Maharashtra is a sign that the rot needs to be arrested to make it more affordable and also to improve margins of providers” adds Dr. Desai.

Thankfully, changes are being made to the private sector hospitals and the government is doing its best to bring in affordable healthcare. In West Bengal, a new bill is being passed by Mamata Banerjee that holds private sectors accountable for their costs. “From inflated bills to negligence in treatment to lack of transparency to serious gaps in communication to unnecessary retentions in ventilation and life support systems, the complaints we were getting against private hospitals and nursing homes about harassment of patients and their families were very, very huge,” she said. This new bill makes overbilling, refusal to treat victims, holding on to bodies over non-payment a crime with up to a three-year prison sentence; she hopes the nation replicates the model.

In West Bengal, a new bill is being passed by Mamata Banerjee that holds PRIVATE SECTORS accountable for their COSTS.

What makes the biggest difference is the lack of awareness among the people. Consumers in healthcare markets suffer from a lack of adequate information about what services they need to buy and which providers offer the best value proposition.

“Healthcare industry is not allowed to advertise, which prevents dissemination of information regarding options available for any kind of surgery and its cost charged by different hospitals. So the patients have to depend on the doctors who they consult first.“

But the bigger picture is what matters. One must understand that managing the healthcare of 1.3 billion individuals is quite a handful. Even advanced countries such as the USA with a population of 323 million are struggling to formulate a perfect healthcare system. “Most hospitals look at tariff revisions every year to increase or maintain profitability, whereas they should instead focus on improving efficiency by better cost controls and optimum use of resources,” concludes Dr. Desai.

The continuous metamorphosis of laws and taxes have both a detrimental and constructive effect on healthcare and its affordability; but with significant foreign direct investment and international quality healthcare seeping into the market, the state of the industry promises to strengthen after facing a few years in turmoil.

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Healthcare Executive

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Healthcare Executive is an exclusive online Healthcare Business magazine based in India .

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