Budget 2018: Corporate hospitals must change model to cash in on Modicare

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The government’s flagship National Health Protection Scheme will increase patient access and lower healthcare costs, but corporate hospitals will have to tweak their business models in order to tap the growth opportunity, say health sector analysts.

Union finance minister Arun Jaitley, in his budget speech on Thursday, announced the National Health Protection Scheme providing hospitalisation cover of Rs 500,000 a year to 100 million families. Jaitley indicated that the scheme was the first step towards universal healthcare and could be extended to cover more families, based on success.

Currently, most of the healthcare spend is out-of-pocket and only about 20 per cent of the population has medical insurance.
“An increased insurance coverage by the government will mean higher volumes for hospitals, as affordability would increase. The scheme will allow a large portion of the population to access private healthcare. However, this will also increase the bargaining power of the government and allow it to drive down prices,” Jefferies analyst Somshankar Sinha said in his post-budget note.

The scheme will boost affordable health care segment and large hospital chains, however, will have to rework their business models to tap the incremental demand.

“The incremental demand from this scheme will be at a lower price point and will also be higher in Tier-II cities. However, corporate hospitals have struggled to address this market due to their cost structure and capex model. Most listed hospitals have, over time, indicated that addressing government-scheme patients in major centres is not remunerative. Companies need to work on cost reduction with a focus on standardisation and a new doctor engagement policy to address this segment and benefit from the government move on access,” Sinha said.

Deepak Malik of Edelweiss Securities believes that the National Health Protection Scheme could potentially triple the country’s healthcare spend to $300 billion, implying a 20 per cent-plus CAGR between FY16 and FY22.

“Total government outlay required for this initiative would be Rs 100 billion at its peak, which will be shared with the respective state governments. Though implementation on this scale will be a challenge, we believe hospitals in the affordable healthcare space will benefit. However, high‐end providers such as Apollo Hospitals, Max India and Fortis Healthcare may miss this opportunity unless they tweak their business models to cater to this large surge in demand in a profitable way,” Malik said.

“The investment in hospitals is a subject matter of viability, so it is yet a bit premature to assess the investment potential of the schemes announced. However, if the prepositions are commercially viable, these would be opening a vast market for the investments to flow in,” said Zahabiya Khorakiwala, managing director of Wockhardt Hospitals group.

Khorakiwala said although details and capital allocation for healthcare protection scheme have not yet been announced, the intent is quite positive, as almost 40 per cent of the underprivileged population would be able to access secondary and tertiary healthcare, and this would increase the market size for health service providers radically.business-standard